Diageo to buy majority stake in India's United Spirits
Indian move follows takeovers of Turkey’s Mey Icki and Ethiopia’s Meta Abo
By Gaurav Sharma | CFO UK | Published 14:16, 09 November 12
Drinks giant Diageo will be buying a controlling stake in India's United Spirits group in a deal worth £1.28 billion.
Both companies agreed on Friday that Diageo will ultimately bag a 53.4 percent stake in United Spirits, a company fronted by India’s liquor baron Vijay Mallya. While the history of the talks between the two companies dated back to 2008, it was only in September that the two companies announced they were in talks.
The controlling stake will come in stages for Diageo. It is initially buying a 27.4 percent stake for £660 million in United Spirits. This would subsequently serve as trigger to launch a mandatory offer for a further 26 percent stake, a spokesperson told CFOWorld.
In India, a source close to United Breweries, another of Mallya’s companies and the brewer of India’s Kingfisher beer, told CFOWorld that the bid was a natural move for both parties.
“The market has long speculated that Diageo wanted a wider footprint in India while Mallya was desperate to raise cash for another one of his businesses – the beleaguered Kingfisher Airline. Either a stake in United Breweries or United Spirits would have been put on the table; it has turned out to be the latter. Today’s announcement meets different ends for both parties,” he said.
Under the terms of the deal, Mallya, who also owns Force India Formula One team, would continue as the chairman of United Spirits (USL) and United Breweries.
"I have had a long association with Diageo and therefore I am confident that this winning partnership with Diageo provides United Spirits with the best possible platform for future growth," he told India’s NDTV.
In a statement in the UK, Diageo chief executive Paul Walsh, said, "I am delighted at the opportunity Diageo has to be part of India's large and growing local spirits market. As a result of the agreements we are announcing today we will be well positioned to take the growth opportunities presented by a spirits market where growth is driven by the increasing number of middle class consumers."
Diageo’s move is the biggest inbound Indian mergers and acquisitions (M&A) deal since Cairn Energy divested a majority stake in its Indian business to London-listed Vedanta Resources last year. Diageo itself is no stranger to M&A deals in emerging markets. The United Spirits deal has followed Diageo's takeover of Turkish spirits group Mey Icki and Ethiopian brewer Meta Abo.
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