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USL shareholders reject Diageo distribution deal

Minority shareholders in Indian drinks group United Spirits have rejected a proposal to make and distribute a selection of Diageo’s spirits brands during a general meeting.

Diageo is not yet able to make and distribute its brands in India through United Spirits after minority shareholders rejected proposals

Diageo, which completed its acquisition of a controlling stake in United Spirits Limited (USL) earlier this year, said it was “surprised and disappointed” by the decision of 30% of minority shareholders to reject the proposals.

Under Indian law, 75% of shareholders must approve company proposals. Diageo said that it would attempt to understand why the proposal was rejected and then return to the shareholders in a bid to gain approval.

This is another set back for United Spirits, India’s largest distiller, which reported a net loss of £445 million in its full-year financial results in September this year due to a write-down on the sale of its Whyte & Mackay Scotch whisky business.

During the general meeting on Friday, minority shareholders also rejected nine out of 12 agreements between USL and other businesses controlled by its chairman, Indian tycoon Vijay Mallya.

Mallya was declared a “willful defaulter” by the United Bank of India (UBI), which claimed Mallya had purposefully not paid an emergency overdraft lent to him to support his grounded Kingfisher Airlines despite having the means to.

As such, Diageo – which owns a 55% controlling share in United Spirits – authorized “a detailed and expeditious” inquiry into whether company cash had been “improperly advanced” to Mallya’s UB Holdings, parent company of USL.

Despite this, Mallya was re-elected as chairman of United Spirits in October this year.

According to a report in the Financial Times, Mumbai-based shareholder advisory firm Stakeholder Empowerment Services, had urged USL shareholders to reject Diageo’s proposal.

The firm claimed that USL and Diageo had not provided adequate details with regards to proposed royalty payments to shareholders and also raised concerns about how revenue and costs would be shared between UK-based Diageo and USL.

In its report, the firm raised serious questions about whether the transactions mentioned were for the “benefit for the company or for Mallya”.

Diageo and United Spirits have not yet responded to The Spirits Business‘ requests for further comment.

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