Vijay Mallya resigns from United Spirits for $75m

26th February, 2016 by Amy Hopkins

Vijay Mallya has resigned from his position as chairman and non-executive director of United Spirits after parent company Diageo agreed to pay the tycoon US$75 million.

Vijay-Mallya

After months of speculation, Vijay Mallya has stepped down as chairman of United Spirits Limited

Diageo said the move “brings to an end the uncertainty relating to the governance of USL”.

It also marks an end to Diageo’s prior agreement to support Mallya in continuing his role as chairman after the UK drinks group acquired a controlling stake in USL for £1.3bn in 2014. Mallya will also step down from the boards of other USL companies.

As part of a “five-year global non-compete, non-interference and standstill arrangement” with Diageo, Mallya will receive US$75m (£53m). Diageo will pay US$40m (£28.6m) of this sum to Mallya immediately, and the remaining balance will be paid in equal installments over five years.

Payment of the funds is subject to Mallya’s compliance with certain terms, including his agreement to not pursue any claims against Diageo.

Diageo has also agreed that Mallya will have “no personal liability” to the group in relation to the findings of an internal investigation into USL’s accounts, conducted after a net sales loss of £445m was recorded in 2013/14.

The tycoon will also be “released” from his “personal obligation” to repay a US$135m loan guaranteed by Diageo for Watson Limited – a company associated with Mallya.

The report stated that between 2010 and 2013, a number of transactions at USL were “diverted” to other UB subsidiaries, including Mallya’s grounded Kingfisher Airlines.

Subsequently, USL’s board of directors issued a vote of “no confidence” in Mallya and called on shareholders to remove him from his position. Mallya refused to step down voluntarily.

While the executive while no longer continue as chairman of USL, he has been given the honorary title of ‘founder emeritus’, but with “no authority, responsibility, rights or benefits” within the group.

Mallya’s son, Sidhartha, will remain on the board of USL’s Royal Challengers Bangalore IPL franchise. Under the agreement, Diageo is prohibited from removing him from the role for two years, subject to certain exceptions. Mallya will also act as ‘chief mentor’ to his son, while the board members will be able to, if they wish, consult with him.

Ivan Menezes, CEO of Diageo, said: “India is an exciting growth opportunity, and USL has the management team, strategy and capability to deliver on that opportunity.

“The agreement announced today is in the best interests of both Diageo and USL and allows USL to build on its strong platform in one of the biggest spirits markets in the world.”

Under the agreement, Diageo has extended Smirnoff’s sponsorship of the Force India Formula 1 team, costing £11m per season. Mallya is team principal and part owner of the team for the next five seasons.

Mallya will be succeeded by Mahendra Kumar Sharma, currently independent non-executive director and chairman of the Audit Committee at USL, as chairman of the company.

Anand Kripalu, managing director and CEO of United Spirits, said: “The agreement reached today is valuable to USL and all its shareholders. It also brings to an end the uncertainty relating to the company’s governance. This will allow the Company to prosper and build on the great platform that we have already created in this exciting market.”

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