Diageo wins United Spirits shareholder vote

United Spirits’ minority shareholders have finally approved a deal for the Indian drinks group to make and distribute brands belonging to its parent company Diageo, two months after the proposals were rejected.

United Spirits will now make and distribute a range of leading international Diageo brands in India

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 at the end of November.

Under Indian law, 75% of shareholders must approve company proposals before they can be put into action.

The proposals were voted down 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.

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

However, Diageo said the deal would allow USL to “gain a diverse product portfolio and extend its “competitive advantage in the premium and above market segments”.

The group, maker of Johnnie Walker Scotch whisky and Smirnoff vodka, added the deal would make Rs 700 crore (US$113 million) in revenue for USL in the first full year of operations.

In a bid to gain shareholder approval, USL called an extraordinary general meeting (EGM) on Friday (9 January), when a 76.3% approval vote was returned.

It was revealed earlier this month that three independent directors of USL – Indu Shahani, Sudhakar Rao, and D. Sivanandhan – had evaluated the proposal and recommended its approval.

A Diageo spokesperson said: “We are pleased that the EGM has approved the distribution agreement  between Diageo and its listed subsidiary in India, USL.

“The full combination of brands across sales, marketing and production will enhance our offering to customers and consumers in the premium and above sectors.

“These are the fastest growth segments of the Indian spirits markets and implementation of a full distribution agreement for Diageo’s wholly owned brands will drive top line growth and value accretion for USL.”

The vote also means that Diageo can now cease distributing its key international brands through its own Indian subsidiary – Diageo India – and avoid hefty import tariffs.

Following protracted negotiations and a series of legal setbacks, Diageo took control of USL in June last year.