New Delhi, March 16: Scottish & Newcastle, the UK-based brewing giant, will raise its stake in Vijay Mallya- owned United Breweries Ltd (UBL) from 26 per cent to 37.5 per cent at an investment of Rs 780 crore ($177 million).

The proposal was cleared today by the cabinet committee on economic affairs, which makes it one of the largest FDI approvals this year.

The government gave Scottish and Newcastle India, the Indian arm of the UK brewer, permission to raise its stake in UBL either directly or through any of its overseas subsidiaries or affiliates.

The two brewing giants had sealed a deal last December under which they proposed to combine their beer brewing interests.

S&N will exercise joint management control with a group of shareholders led by Vijay Mallya in the combined brewing operations.

The stake increase will be through a combination of equity and preference shares. It will be achieved through a five-stage process beginning with S&N?s subscription to 37,79,522 shares of UBL at a price of Rs 575 per share, which will be issued through a preferential allotment.

In the second stage, S&N will subscribe to warrants convertible into 51,09,198 shares of UBL at a price of Rs 575 per share. The warrants will be exercised only if the stake is equal to or less than 37.5 per cent.

S&N will then come out with an open offer to pick up to a maximum of 43,20,025 shares of UBL at the same price from the Indian shareholders.

This will be followed by two tranches of redeemable preference shares of Rs 100 each that will carry an interest of 3 per cent. In the first series, S&N will subscribe to 1,72,83,000 preference shares and in the second to 74,07,000.

S&N will also retain its 40 per cent interest in Millennium Alcobev, its existing joint venture with United Breweries that was formed in May 2003.

As part of the deal, Vijay Mallya will reduce his stakeholding in UBL to the same level as S&N ? 37.5 per cent. Once the deal is completed, S&N and the Vijay Mallya group will each appoint two directors on the board of UBL and will jointly appoint three independent non-executive directors.The approval for the deal marks the near culmination of the restructuring in Vijay Mallya?s liquor and brewing companies.