The Telegraph
Since 1st March, 1999
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Treasury stock to come in handy

Mumbai, May 16: United Spirits will dip into its treasury stock to part finance the Whyte & Mackay acquisition and bring down the debt component in order to make the deal palatable to shareholders who might be a little queasy about the high price.

Financing for the £595-million deal will be arranged and provided by ICICI Bank and Citibank. However, a large part of the debt will be non-recourse and it will not have any impact on the balance sheet of United Spirits.

ICICI Bank will put up £325 million while Citibank will chip in with £310 million — making for a total of £635 million, leaving some unanswered questions about the £40-million overhang.

There was some speculation that some part of this might be used to plug Whyte & Mackay’s pension fund deficit but senior officials at United Spirits denied it. It is possible that this will be used as initial working capital but there was no official confirmation of this either.

While many Indian companies have been making big-ticket overseas acquisitions over the past few years, worries have been growing over the impact that a large debt component could have on their books.

In the case of Whyte & Mackay also, there have been worries that the deal may be expensive for United Spirits with the deal size swelling from £400 million that media reports speculated at one stage to £595 million now.

However, UB Group chairman Vijay Mallya today maintained that the company was not over-paying for the acquisition.

Given the fact that Whyte & Mackay’s inventories and its frontline brands were valued at a minimum of £520 million, Mallya argued that the company had acquired valuable assets at an attractive price. He added that United Spirits had a “large amount of treasury stock’’ and part of this would be sold to part-finance the acquisition.

It may be recalled that after the merger of Shaw Wallace & Company, United Spirits holds a treasury stock of over 1.02 crore shares.

Sources said another 21 lakh shares were held with a unit called USL Benefit Trust and these could be sold.

The United Spirits stock is currently ruling at Rs 895.20 which means that the company can raise as much as Rs 1,200 crore from a stock sale.

Mallya also indicated that the debt of £325 million would be based on the cash flows of Whyte & Mackay. This debt carries a moratorium of two years and will thereafter become payable over a period of up to nine years.

Similarly, the £310-million debt from Citibank carries a moratorium of 30 months and will be payable over five years after that period.

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