Diageo’s initial United offer is rebuffed

1st May, 2013 by Ron Emler

Diageo’s offer to buy a 26% stake in United Spirits (USL), the dominant spirits group in the Indian market, has been rebuffed by shareholders, according to reports from Mumbai.

United Spirits VJ MallyaDiageo offered 1,440 rupees per share, a significant premium to the then market price when the bid was made late last year. Today the share price stands at more than 2,000 rupees and agencies in Mumbai have speculated that Diageo may have won only 65,000 shares when the tender offer for up to 38 million shares closed on Friday.

Neither company will comment on the outcome of the tender offer, which was one component of a complex £1.2bn deal for Diageo to take control of USL. However, observers suggest that the setback is no obstacle to the takeover being completed, giving the world’s biggest premium spirits group a significant trading advantage in the sub-continent.

As part of the purchase, VJ Mallya, USL’s chairman and major shareholder, is selling a 27.4% stake in USL to Diageo and is contracted to vote the remainder of his stock with Diageo for the next four years. That will give Diageo a controlling majority of the votes on the USL board. In addition, Diageo will appoint USL’s chief executive and chief financial officer as well as other board members. Mallya will remain on the USL board as a non-executive chairman.

In addition, Diageo is on record as saying that it will continue to distribute its global premium spirits brands through its existing subsidiary company in India, at least in the medium term. Only gradually does it plan to integrate the groups, and then only after further premiumising USL’s domestic brands. So any slipping of the timetable for Diageo to control USL will have only a marginal effect on initial returns.

Additionally, industry sources say that it would be normal practice for Diageo, if it has failed to win a majority of the USL shares via the tender offer, to give the Indian company only a distributor’s margin on any Diageo brands it handles, rather than the much more profitable brand owner’s margin. That could change as it increases its own shareholding in USL.

Market observers believe that USL shares rose rapidly on speculation that Diageo would increase its offer beyond 1,440 rupees a share, despite the British group firmly denying that it would do so. In any event, the formal offer has closed.

With no higher offer on the table and Diageo about to pick up 27.4% of USL from Mallya and his associates, the prospect of a rival bid for USL emerging is very remote. Diageo has a stranglehold on the company for the next four years. Over that time, the speculative froth in USL shares will recede, allowing Diageo to pick up shares at or near the tender offer price, further solidifying its control of USL.

Leave a Reply

Your email address will not be published. Required fields are marked *

Please note that comments are subject to our posting guidelines in accordance with the Defamation Act 2013. Posts containing swear words, discrimination, offensive language and libellous or defamatory comments will not be approved.

Subscribe to our newsletters

Job vacancies

Account Manager

Justerini & Brooks
London, UK

Cider Master

Emily Estate UK Ltd
Bruton, Somerset, GB

Senior Customer Marketing Manager

Conviviality Group
London or Bristol, UK

Customer Marketing Manager- 12 month FTC

Conviviality Direct
London, UK

PR Account Executive

Clementine Communications Ltd
Fulham, UK

Marketing Manager

Berkmann Wine Cellars
London, N7, UK

Brand Manager

Berkmann Wine Cellars
London, N7, UK

Sales Account Manager

Jascots Wine Merchants
London, UK

Marylebone Sales Manager

Philglas & Swiggot
Marylebone, London, UK

Area Sales Manager

Bon Coeur Fine Wines
North England, UK

Procurement Assistant – Wine

Adnams PLC
Southwold, UK

Account Manager Central London

Speciality Drinks Ltd
London, UK

Brand Ambassador

Speciality Drinks Ltd
London, UK

National Business Development Manager

Speciality Drinks Ltd
London, UK

Marketing Assistant

Hatch Mansfield
Ascot, Berkshire, UK

The Global Sparkling Masters 2017

Deadline : 25th August 2017

The Global Malbec Masters 2017

Deadline : 25th August 2017

The Global Sauvignon Blanc Masters 2017

Deadline : 1st September 2017

Global Chardonnay Masters 2017

Deadline : 8th September 2017

Click to view more

The Global Rosé Masters 2017

With wines from the palest of pink to almost ruby red, bone dry to almost cloyingly sweet, reductively handled to barrel-aged, as well as gently spritzy to fully sparkling.

The Global Organic Masters 2017

The drinks business is thrilled to announce the launch of The Global Organic Masters

The Drinks Business Awards 2017

Now in its 15th year, the db awards have become the most authoritative, internationally respected badge of achievement in the alcoholic drinks industry.

The Asian Cabernet Sauvignon Masters 2017

the drinks business Hong Kong announces its first year of The Asian Cabernet Sauvignon Masters.

Click to view more