The Telegraph
Wednesday , April 16 , 2014
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Fresh Diageo bait for USL

Mumbai, April 15: Diageo Plc today launched an open offer worth $1.9 billion (Rs 11,448.92 crore) for the shareholders of United Spirits Ltd (USL) in a bid to acquire a majority stake in the company.

The world’s largest spirits company will pay Rs 3,030 per share to the minority shareholders of USL to acquire nearly 3.78 crore shares and it is being made through Relay BV, its wholly owned indirect subsidiary.

This is the second open offer made by Diageo to the shareholders of USL and is being seen as an attempt to strengthen its presence in key markets such as India.

The spirits giant, which sells brands such as Smirnoff vodka and Johnnie Walker whiskey, had announced in 2012 that it would pick up a 53.4 per cent stake in USL for Rs 11,166.5 crore.

However, Diageo was unable to raise its stake up to the desired level. The targeted shareholding of 53.4 per cent included an open offer of 26 per cent, which received poor shareholder response as the offer price was lower than the prevailing market price.

In fact, of the 3.8 crore shares of United Spirits that were then on offer (in April last year), only 58,688 shares were accepted.

Relay BV now holds 28.78 per cent of USL, which was acquired for Rs 6,574.22 crore. It initially held 25.02 per cent in USL and in February this year, picked up a 2.4 per cent stake through an open market purchase. Earlier in November 2013, it had bought 1.35 per cent from a foreign institutional investor.

The open offer price announced by Diageo today is a premium of 20 per cent to the Sebi regulatory floor price. Analysts expect the latest open offer to receive a better response from shareholders of USL.

If the offer is fully subscribed, Relay will hold 54.78 per cent of USL’s equity and it would have paid around Rs 18,023.14 crore for its total shareholding in USL, Diageo said in a statement.

Diageo added its second offer is not subject to any conditions regarding levels of acceptance. If the offer is not fully subscribed, all USL shares tendered would be acquired by Relay, subject to the terms and conditions of the offer.

Diageo, however, pointed out that if the offer was fully subscribed and it got to control a majority of USL shares, a voting obligation on United Breweries (Holdings) Ltd (UBHL), which holds 5.93 percent of USL’s issued share capital, will cease.

Under the terms of a November 2012 agreement between the two, UBHL is obliged to vote along with Relay.

If Diageo is unable to secure a majority in USL through the open offer, the obligation on members of the UBHL group to vote with Relay will remain until USL gets control or the end of the fourth full financial year of Diageo after July 1, 2014, whichever comes first, the company said.

According to Diageo, its total investment in USL, on full subscription of the open offer, is expected to be earnings positive in 2021-22, the seventh full financial year after completion. While some of the shares held by UBHL is now under dispute, Diageo said certain lenders to USL were refusing to release security that they hold over shares amounting to 2.38 per cent of its equity.