Diageo seeks to buy additional 26% of United Spirits for Rs11,451.3 crore

Diageo Plc, the world's largest maker of alcoholic drinks has again launched a tender offer to acquire an additional 26 per cent stake in Vijay Mallya's flagship distillery United Spirits Ltd (USL) for around Rs11,451.3 crore ($1.9 billion).

Diageo, the owner of Red Label whisky, plans to acquire up to 37,785,214 shares in USL through Relay BV, its wholly-owned indirect subsidiary, for Rs3,030 ($50.30) per share, a premium of 18.5 per cent to USL's Friday closing price of Rs 2,557.

On completion of the tender offer, Diageo will increase its stake in united Spirits from 28.8 per cent to 54.8 per cent.

The London-based company said that it will fund the purchase through existing cash resources and debt.

Its latest tender offer will commence on 11 June and expire on 24 June.

Mallya, the self-professed `King of Good Times', entered into talks with Diageo to sell 25 per cent in USL in order to reduce a massive debt of Rs7,000 crore incurred by his ailing Kingfisher Airlines. (See: Diageo in talks to acquire stake in Mallya's United Spirits)

The long-drawn-out talks fructified in November 2012 when Diageo agreed to pick up a 53.4-per cent stake in USL in a complex two-stage deal worth around Rs11,165 crore ($2.05 billion). (See: Diageo to acquire 53.4 % in United Spirits for Rs11,165 crore)

Under the deal, the New York and the London-listed Diageo offered to buy a 15 per-cent stake in USL from Mallya's flagship company UB Group, and another 10 per cent from shareholders.

After the stake sale, UB group continued to hold 14.9 per cent stake in USL.

Shareholders of USL then approved the preferential allotment of new shares to Diageo at Rs1,440 per share amounting to 10 per cent of the post-issue enlarged share capital of USL.

These purchases automatically forced Diageo to launch a mandatory tender offer for 26-per cent stake of the enlarged share capital of USL at Rs1,440 per share. (See: Diageo offers to acquire additional 26 % in United Spirits for Rs5,441 crore)

But it abandoned the tender offer as USL shareholders refused to sell their shares saying the valuation was low. Diageo then picked up an additional stake from the open market for Rs866 crore, raising its stake to 28.8 per cent.

Diageo, formed through the1997 merger of Guinness plc and Grand Metropolitan plc, is the world's leading premium drinks business with an outstanding collection of beverage alcohol brands across spirits, beer and wine, with its portfolio of products sold in more than 180 countries around the world.

These brands include Johnnie Walker, Crown Royal, J&B, Windsor, Buchanan's and Bushmills whiskies, Smirnoff, Cîroc and Ketel One vodkas, Baileys, Captain Morgan, Jose Cuervo, Tanqueray and Guinness.

At the time of the USL deal, Diageo was already present in India through its imported Johnnie Walker scotch and Smirnoff vodka brand and local brand Rowson's Reserve whisky among others.

Diego competes in India with Pernod Ricard, which has strong local brands like Royal Stag and Imperial Blue among others.

The USL deal gave Diageo access to some of the leading Indian brands such as Royal Challenge, Bagpiper Whisky, Director's Special and Gilbey's Green Label.

USL is India's largest spirits company by sales volume, and exports a range of liquor brands to 37 countries. It holds a dominating 43 per cent share of the Indian liquor market through a robust distribution network and brands such as McDowell's No. 1 whiskey, Romanov vodka and Four Seasons wines.