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Diageo ‘may raise stake’ in United Spirits
Diageo has declined to comment on reports that it is considering increasing its majority stake in Indian drinks group United Spirits (USL).
Diageo is “weighing an open offer to the other shareholders”, reports say
The Johnnie Walker-maker is “weighing an open offer to the other shareholders”, according to a news article by Bloomberg, which cites its source of information as “people familiar with the matter”.
“No final decisions” have been made, according to the sources, who added that the company may yet decide against buying more shares.
Diageo has reportedly considered increasing its stake for “several months” – prompted by USL’s 22% decline in share price over the last 12 months, which makes the purchase “more attractive”.
Last year CEO Ivan Menezes cited the companies priorities for fiscal 2017 as Scotch, US spirits and India – if completed, the deal would help Diageo build on its lead in the world’s largest whisky market by volume.
Diageo currently has a 55% stake in the company with a market value of around US$4.7 billion. According to Indian stock market regulations Diageo could raise its stake to reach just under 75% without triggering a delisting offer.
Despite challenges, USL reported 8% net sales growth in the first half of its financial year – with CEO Anand Kripalum predicting “strong and sustained performance in the coming years”. The current value of a 20% stake in United Spirits is approximately US$940 million, according to Bloomberg.
Diageo launched an investigation into USL’s books in September 2014, five months after acquiring its controlling stake in the business for £1.13bn, a move which signalled the beginning of a discordant relationship with former USL chairman Vijay Mallya.
Mallya resigned as chairman and non-executive director of Diageo-owned Indian drinks group United Spirits in February after the investigation found that company funds were diverted to other entities.
Upon his departure, Diageo agreed that Mallya would not have any “personal liability” and agreed to pay the tycoon US$75m.
In November, Mallya gifted US$40 million received the severance deal to his children.
When approached by The Spirits Business on the reports the company was to increase its share in USL, Diageo declined to comment.