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Breaking News - Diageo's initial share in United drops

diageo3.jpgDiageo's offer to buy a 26% stake in United Spirits (USL)has been "rebuffed by shareholders", says the Drinks Business. Diageo's offer was Rs 1,440 per share, which was very much higher than the prevailing market price at the time of the bid last year. The share price today is Rs 2,000. Although there is no comment from either company, speculation is rife that Diageo received just 65,000 of the up to 38 million shares when the tender offer closed on Friday.

However, the share offer is only one part of the complex £1.2bn deal for Diageo to take control of USL and is not seen as a significant setback for Diageo which now has a considerable trading advantage in the subcontinent.

Vijay Mallya, USL's chairman and major stakeholder is selling Diageo a 27.4% stake in USL. He has also contracted to vote the remainder of his stock with Diageo for the next four years. This means Diageo gets a controlling majority of the votes on the USL board and will appoint USL's board members including its CEO and CFO, with Mallya as the non-executive chairman.

Meanwhile, Diageo will continue to distribute its global premium spirits brands through its existing subsidiary company in India and only gradually integrate the two groups following further premiumising of USL's domestic brands.

Drinks Business notes in conclusion that Diageo has "a stranglehold" on the company for the next four years and will be able to pick up shares at or near the tender offer price and further solidify its control of USL.


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