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Diageo agrees United Spirits deal for £1.2bn

Diageo has agreed a £1.2bn deal with Vijay Mallya’s United Spirits (USL) to acquire a majority share of the Indian spirits business.

Vijay Mallya United Spirits Kingfisher Diageo
Vijay Mallya will remain at United Spirits as chairman

The British drinks group has agreed to buy an initial 27.4% stake in USL for 57,254 million Indian rupees (£660m), at a share price of 1,440 Indian rupees.

In addition, Diageo will also launch a mandatory tender offer to the public shareholders of USL to acquire a further 26% stake in the business (at a cost of 54,411 million Indian rupees or £625), which if approved, would bring its total share to 53.4%.

In the event that Diageo’s tender is turned down, USL has agreed to sell additional shares to the group to ensure Diageo has a minimum shareholding of 25.1%.

Mallya, who has been in negotiations with the British drinks giant for months, will continue in his role as chairman of United Spirits and United Beverage Holdings (UBH), working with Diageo to build the business in India.

It ends weeks of speculation that the deal would not come to fruition after an arrest warrant was issued for Mallya over a number of bounced cheques made from his Kingfisher Airlines business.

The deal also includes an agreement between Mallya and Diageo to form a 50:50 joint venture that will own United National Breweries’ traditional sorghum beer business in South Africa. The duo are also considering the possibility of extending the venture to emerging markets in Africa and Asia (excluding India).

Indian foothold

Paul Walsh, chief executive of Diageo, said: “As a result of the agreements we are announcing today we will be well positioned to take the growth opportunities presented by a spirits market where growth is driven by the increasing number of middle class consumers.

“USL’s number one position in local spirits together with our growing international spirits business of leading brands will enable us to grow across the consumer space as India’s increasing number of middle class consumers look to enjoy premium and prestige local spirits brands as income levels rise.

“Vijay Mallya’s experience in building USL to the leadership position it has is unique in our industry and in his position, as Chairman of USL, I look forward to working with him to deliver value for the shareholders of both USL and Diageo.

“The acquisition of our shareholding in USL is fully aligned with our strategy to build our presence in the world’s faster growing markets and enhances our position as the world’s leading premium drinks company.”

Vijay Mallya, chairman of the UB Group, said: “I am very proud of USL and what has been created over the last 30 years to bring this company to its pre-eminent position in India.

“I have had a long association with Diageo and therefore I am confident that this winning partnership with Diageo provides USL with the best possible platform for future growth. I am delighted to remain part of that journey as Chairman of USL as we work together to build continued value for the shareholders of USL and UBH.”

The acquisition of shares and the completion of the tender offer are expected to complete in Q1 2013.

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