Diageo to buy 53% stake in Mallya’s USL for $2bn

'Not Sold Family Silver, Funds Not For KFA' Boby Kurian & Anshul Dhamija TNN  Mumbai/Bangalore: Drinks giant Diageo Plc has agreed to buy up to 53.4% stake in United Spirits Ltd (USL) for $2 billion (over Rs 11,000 crore) in a deal combining the world's most valued liquor company with the largest volume player.      This one swig makes Diageo the new master of India's booming liquor market with more than 50% share. India, one of the fastest growing geographies for alcoholic beverages, also becomes Diageo's second largest market after the US.      The British behemoth, however, nuanced the acquisition as a partnership with Vijay Mallya to make the latter's "incredibly strong" liquor empire more successful.      Mallya, who will remain chairman despite an almost halved stake, continued his aggressive talk with Indian media, saying, "I am not selling my family silver or jewels. I am just embellishing it. I am not here to correct perceptions. But facts will be facts." WHAT THIS DEAL MEANS      Diageo to acquire 27.4% in United Spirits Limited through a combination of Mallya's stake and preferential allotment at $1.1bn      It will launch an open offer for a maximum of 26%, taking its holding to 53.4%; the total value of the deal works out to $2.04bn      Mallya's United Breweries (Holdings) Ltd, also parent of KFA, will receive Rs 2,300 crore in cash      It will help Mallya cut group's debt, which stands at over Rs16,000 crore      Diageo-USL combine (247m cases of 9 litres each) will be more than double the size of its nearest rival Pernod Ricard (100m cases) by volume globally A win-win situation, says Diageo COO      Vijay Mallya's United Breweries (Holdings) Ltd will own a 14.9% stake at the end of the Diageo transaction. Industry observers said Diageo's unlikely to tinker with USL top brass as it recognizes the complexity of the buyout in a tightly regulated industry, where politics often dictates tax regimes and trading regulations in many states.      The alcobev tycoon also rejected speculation that he would plough cash from Diageo to restart the grounded Kingfisher Airlines. "I have always run businesses separately without cross-contamination. I have done my best for beer business in the past and I am doing the same for liquor now. I will do it for airline company too, fairly and squarely," Mallya said.      Diageo Plc chief operating officer Ivan Menezes, who spearheaded deal talks with Mallya for almost six years, said it was "a win-win situation" for the two partners in one of the most exciting markets growing at 15% annually. Menezes indicated that Diageo would leave USL management structure undisturbed for a while but refused to detail the new board composition and the rights the London-listed company would carry as part of the acquisition. "I will continue what I have been doing so far," Mallya quipped to a query on whether he would continue to be a chairman with executive duties.      Diageo and Mallya also entered into a separate agreement to float an equal South African JV, after the former decided to take a 50% stake in the privately held United National Breweries of the Indian liquor czar. This could become a broader vehicle to expand Mallya's interests into other emerging markets. TOI first reported on Diageo's plans to strike an African JV with Mallya on September 27.      The long-rumoured deal was unveiled on Friday afternoon with Mallya and Menezes addressing the media from London. Diageo will pay Rs 1,440 per share to buy an initial 27.4% stake (purchased from Mallya and through fresh allotments) for a total consideration of Rs 5,724 crore, or about $1.1 billion. This will trigger mandatory open offer for another 26%, giving Diageo a controlling interest of 53.4% in the company, which also owns Scottish distiller Whyte & Mackay. The total consideration, including the open offer, could cross $2 billion when completed.      Menezes said Diageo will keep its fully-owned India unit separate with no immediate plans to merge it with USL. This Diageo subsidiary currently imports brands like Johnnie Walker scotch whiskey and sells locally bottled brands such as Smirnoff vodka, Vat 69 and Black & White. While the sensex ended down on Friday, USL's share price closed 1.22% higher at Rs 1,359.70. On the London Stock Exchange, Diageo's share price was marginally up. I have not sold any family jewel but embellished it  Vijay Mallya India has the potential to become the largest market in the long term  Ivan Menezes

Diageo set to take over Mallya’s United Spirits

Mumbai: India-born Ivan Menezes, seen to be the next chief executive at Diageo Plc, is leading the drinks giant on its most significant conquest in emerging markets. Menezes, currently chief operating officer, and his battery of dealmakers are set to clinch a long-rumoured takeover of United Spirits Ltd (USL) from troubled liquor czar Vijay Mallya anytime now. 

    Diageo, makers of Johnnie Walker scotch whiskey and Smirnoff vodka, will take significant ownership and management rights in USL, a Bangalore-based company with more than 50% share of India's branded liquor sales.Mallya will retain a stake and continue as USL chairman. 
    Diageo has called for a meet of its global staff on Friday to explain the implications of the deal. When TOI tried to contact Mallya, we were told he was busy in meetings and unable to respond. 
    The deal is arguably the most significant foreign acquisition of some of India's best known consumer brands after Ramesh Chauhan's sale of his soft drinks business to Coca-Cola. 
    Mallya's flagship McDowell's No.1, with retail sales topping $2 billion, is the second largest Indian FMCG trademark after Amul. 
    Diageo has been in protracted talks with USL but negotiations were renewed earlier this year after Mallya's Kingfisher Airlines struggled under mounting debts and losses, which eventually saw the DGCA suspending its flying licence last month. TOI first reported on Diageo re-engaging with Mallya on March 29 this year. 
KFA differs with auditor on Q2 loss K ingfisher Airlines and its auditor are divided on the Q2 loss suffered by the carrier. While Kingfisher has reported a net loss of Rs 754 crore, its auditor says the loss would have been Rs 1,032 crore had KFA followed "generally accepted accounting standards" instead of a "going concern basis" which banks on resumption of operations and infusion of funds. P 23 Deal to spur Diageo-Pernod duel 
    Vijay Mallya and Diageo's brass were finalizing the final contours of the deal in London at the time of going to press. Diageo's share purchase will peg the enterprise valuation of USL at about $4 billion. The soon-tobe-announced deal will be a complex affair with Mallya remaining the flagbearer of his brands, for which Diageo might actually pay a hefty annual fee, said a banking source familiar with the matter. 
    Diageo and Mallya are said to be working on a web of agreements to protect the latter's financial interests, as one of India's most colourful business tycoons gets ready cede his family business to a foreign rival. Diageo will be banking on Mallya as it readies a bigger play in one of the most difficult alcoholic beverage markets where tax regimes and trading restrictions are overbearing and fickle. 
    Still, the impending deal will give the British drinks behemoth ownership interest of several market leading brands in the world's fastest growing whiskey market. India's liquor consumption has been reporting more than 10% annual growth in recent years, with premium brands often vaulting at double that rate. 
    Mallya's brands—which include blockbusters like Bagpiper, Royal Challenge and Signature—sell over 125 million cases (of 9 litre each) annually. This is six times bigger than its closest rival, Pernod Ricard, in volume sales, even though the latter has emerged as the most profitable in the domestic market. 
    Pernod Ricard's rise signalled Mallya's weakening hold over premium segments, with aspirational middle class consumers gulping down foreign brands more frequently. 
    "Indian liquor companies, including United Spirits, were riding a tiger on volume growth in low margin segment. But persistent cost pressures in recent past made it tougher even as MNC brands began dominating premium segments. Mallya surely needed a partner like Diageo going forward, and debt overhang on his other businesses have only hastened this process," said Sanjay Jain, director at Taj capital, a New Delhi-based investment firm which has advised deals in alcobev sector. 
    The impending deal will see global rivalries being drawn in the Indian market. The deal is seen as a booster to Diageo that trails French rival Pernod Ricard in emerging markets. Pernod Ricard's rapidly growing Indian whiskies Blender's Pride, Royal Stag and Imperial Blue have already made it the second largest domestic distiller. But Diageo's big push will uncork a new phase in an industry where Mallya and his late challenger Manu Chhabria once fought bitter battles, often at the cost of their businesses.