Diageo takes control of United Spirits Buys 25% For 5,236 Crore, Ends Mallya’s Reign Over Family Enterprise

Bangalore/Mumbai: Drinks giant Diageo took control of United Spirits (USL) with the world's most valued liquor company sealing a 25% stake purchase for $870 million, or Rs 5,236 crore. The deal effectively ends Vijay Mallya's reign over a family enterprise, founded by his father, which controls more than 40% share of the domestic branded spirits sales. 

    Diageo, maker of Johnnie walker and Smirnoff, has mopped up less than half of what it had sought to purchase when it struck the deal eight months ago. The London-listed company had hoped to buy 53.4% stake for $2.1 billion, but a failed open offer and a standoff with the lenders of Mallya's grounded Kingfisher Airlines saw it mop up just 25%. Mallya, who remains chairman of USL, will keep 11% stake, significantly lesser than the originally envisaged 14.9%. 
    Diageo said it would nominate eight out of the 10 USL board members leaving no doubts on the control factor. It will consolidate USL revenue with its global balance sheet and will be free to change the management structure, if wanted. IvanMenezes, CEO, Diageo, said, "Having completed the share purchase, we will now begin the work to identify and capture the significant growth opportunities within this attractive Indian market." Mallya said he "looked forward to remaining part of the journey in my role as chairman". 
    On Thursday, Diageo acquired a 14.98% stake in United Spirits for Rs 3,135 crore ($521 million). Before this, in May, it had acquired a 10% stake through a preferential allotment for Rs 2,093 crore ($348 million). Diageo garnered an abysmal 0.44% through the open after the USL stock rallied past the offer price of Rs 1,440. The stock has soared 120% since the deal announcement in November last year to reach life-time high of Rs 2,605 a month ago. It climbed up 1.7% to close at Rs 2,556 in Mumbai trade on Thursday. Standard Chartered, JM Financial and Bank of America advised on the deal. 
    But industry observers, and a section of the analyst commentary, said Diageo could face a bumpy ride before settling in an over regulated and complex market. "The transitioning of Diageo will be interesting. A portfolio review of volume brands low on profits and operational improvement initiatives, especially on supply-side, may lead to one-time writeoffs in the coming quarters, which the current run-away stock price needs to factor in," said Sanjay Jain, director at Taj Capital, a New Delhi based investment advisory. 
    The soaring stock price has made Mallya richer with his remaining shares now worth more than Rs 4,000 crore, or $700 million. IDFC Securities in a recent report said the stock would get rerated post Diageo acquisition, with a price target of Rs 3,000. 
    USL was the flagship of United Breweries Group, an alcoholic beverage empire, which the late Vittal Mallya created before an untimely death in 1983. He emerged as the leader in beer and spirits sales acquiring distilleries and breweries which went on sale during the prohibition days in the late '70s.