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USL asks shareholders to approve Diageo deal

United Spirits is to approach minority shareholders and ask for approval to make and distribute Diageo’s portfolio in India, after the proposal was rejected last month.

Diageo-brands
United Spirits has called an extraordinary general meeting to ask shareholders to reconsider a deal to make and distribute Diageo’s portfolio in India

On 28 December, minority shareholders in United Spirits Limited (USL) – India’s largest drinks firm in which Diageo owns a controlling stake – voted down the proposals amid concerns over royalty payments and whether the deal was for “the benefit of the company or Vijay Mallya”, chairman of USL.

The tycoon came under fire earlier this year when he was declared a “willful defaulter” of debts by the United Bank of India.

According to the Financial Times, Mumbai-based shareholder advisory firm Stakeholder Empowerment Services, had urged USL shareholders to reject the proposals.

Diageo said it was “surprised and disappointed” by the 30% vote-down, adding that the deal would allow USL to “gain a diverse product portfolio” and extend its “competitive advantage in the premium and above market segments”.

Under Indian law, 75% of shareholders must approve company proposals.

However, Diageo has organised an extraordinary general meeting on 9 January to approach shareholders in the hope of securing their approval, reports the The Financial Express, adding the deal would make Rs 700 crore in revenue for the company in the first full year.

“Following the declaration of the results of the postal ballot, certain investors expressed their view to the management of the company that disclosure of the estimated monetary benefits that are likely to accrue to the company pursuant to the licence and distribution agreements would assist shareholders in better understanding the implications of the company entering into the agreements,” USL said it is EGM announcement.

Currently, Diageo’s brands, including Smirnoff vodka and Johnnie Walker whisky, are currently manufactured and distributed in India by its dedicated subsidiary Diageo India.

Diageo completed the acquisition of a 55% controlling stake in USL earlier this year following a series of setbacks. The group ordered an inquiry into loans paid out by United Spirits after the revelation the group had clocked a net loss of £445m in 2013/14.

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