You are currently viewing the International Edition. You can also switch to the Hong Kong Edition.
Tuesday 30 June 2015

Diageo bids £1bn for control of United Spirits

15th April, 2014 by Ron Emler

In his first significant market move, Ivan Menezes, Diageo’s new chief executive, has thrown his dice and bid £1.13bn for control of India’s United Spirits, the sub-continent’s dominant spirits group.

Vijay MallyaThe world’s largest spirits group has launched a tender offer for 26% of USL’s shares, which, if taken up in full, would give Diageo 55% of the equity and place full control in its hands. Diageo’s chief financial officer, Dierdre Mahlan says the move will give the company “certainty of control”.

In 2012, Diageo took effective control of USL through a complicated deal that gave it some 27% of the shares. At the same time, United’s owner, Vijay Mallya (pictured), committed to voting with Diageo on the board, thus giving the UK group management of the company for a minimum of four years.

Diageo has been seeking to increase its stake in USL via small purchases on the Indian stock market, but the tender offer underlines how much importance Indian-born Menezes places on cementing a very strong presence in India.

In 2012, Diageo tendered for shares on the open market, which shareholders regarded as derisory and rejected en masse. Since then United Spirits shares have risen steadily in the expectation of Diageo returning with a much more attractive offer.

Bloomberg calculates that the price being offered by Diageo is at a 39% premium to USL’s earnings before interest, taxes, depreciation and amortisation in the past 12 months. That is more than double the level of deals in the sector in the past five years and is almost double the multiple of about 20 Suntory is paying for Beam.

This shows the importance Menezes places on becoming No 1 in India, especially as the takeover will restrict his scope for other than niche deals elsewhere in the near future. Even so, commentators in India are not convinced that Diageo will get all the shares it wants at the present price. They believe some holders will want an even bigger premium for what they see as a one-way bet for Diageo.

Analysis from Bloomberg suggests that Diageo has cash of about £1.77bn in its coffers but the deal will be funded by loans and longer-term debt.

Part of the price will be offset by the enforced sale of Whyte & Mackay, the next stage of which is due later this week. UK competition authorities have required Diageo to sell off the scotch brand as part of approval of the USL takeover.

USL bought Whyte & Mackay in 2007 for what then was thought to be the very high price of £595m as Mallya attempted to bolster his global ambitions. Market sources suggest that there are five potential buyers in the running, with an expected price of about £400m.

They are Lion Capital, investment break-up specialists KKR, Thai Beverage , Davide Campari-Milano and an unnamed Russian company. The latest offers are due to be submitted on Thursday,

Meanwhile, objections to Diageo’s original purchase of USL shares and the deal with Mallya are wending a slow way through India’s legal system. They claim in essence that some of the proceeds should have gone to creditors of other Mallya companies such as the disastrous Kingfisher airline. That said, the proceedings are unlikely to have a material effect on Diageo’s plans in the sub-continent.

Leave a Reply

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

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

If that's interesting, how about these?

US Senate passes bill to boost spirits exports

The US senate has been applauded by members of the spirits trade for passing a more...

New £25m Chivas distillery opened

Nicola Sturgeon hailed the "exceptional quality" of Scotch whisky as she opened more...

Tequila leads luxury spirits boost

Luxury brands of Tequila backed by celebrities such as P Diddy and George more...

Digital and Communications Executive

£22,000-£26,000 dependent on experience

Tesco to announce more sales woes

Tesco's travails look set to continue, as City analysts say it is preparing to more...

Britain’s cocktail habits expose north south divide

A survey has revealed Brits' cocktail preferences depend on there they live, more...

UK market in growth as price increases slow

The latest figures from the Wine and Spirit Trade Association show that more...

International Business Development Assistant

London, United Kingdom

To be determined, based on the profile and experience of the candidate

Japanese whisky shortage affects Nikka

Japan's Nikka Whisky will replace its entire range of single malts with more...

Top 10 architectural wonders of the wine world

You don't have to look far to find stunning examples of architectural prowess more...

WW1 Scotch to be auctioned

A bottle of Scotch whisky purportedly belonging to a soldier in the First World more...

London Sales Manager / Key Account Manager

London, United Kingdom

Competitive - depending on skills and experience

Flavoured styles lead drinks NPD

A new report from Nielsen shows that flavoured variants are dominating more...

Top 10 wine brands 2015

In a year that saw major shifts in the global wine market, the drinks business more...

Vinexpo: five days 'too much' says organiser

Vinexpo doesn’t need to run for the full five days because no visitor stays more...

Supplier Relationship Manager

London, United Kingdom

Range of Victorian gins launched in UK

A range of gins celebrating the Victorian gin-making era has been launched in more...

Diageo closes in on £200m Gleneagles deal

Drinks giant Diageo is reportedly “close” to agreeing a sale of its luxury more...

Machine makes 'non-clinking' ice cubes

An Italian design company has joined forced with Chivas to launch a machine more...

Business Development Executive

London, United Kingdom

£25-£30K + benefits, depending on experience

Prince Charles enjoys Scotch tour

HRH Prince Charles, Duke of Rothesay, paid a visit to a number of Scotch whisky more...

Top 10 ways to reuse a wine bottle

If you are anything like the db team, it won't take long to amass a collection more...

How to become a 'wine expert' in four hours

A doctor of psychology has devised 10 simple steps which he claims can set you more...

Hatch Mansfield – Brand Manager

London, United Kingdom

Competitive salary

SWA creates heavyweight London team

The Scotch Whisky Association has appointed a number of senior high-fliers from more...

Whisky has 'regained its attractiveness'

Scotch whisky is moving beyond its traditional consumer base and has "regained more...