Diageo acquires share in Indian spirits company

Diageo has fully acquired a further 14.98% stake in United Spirits Limited (USL), the leading spirits company in India. At INR 1440 per share, the total consideration of INR 31,345,558,560 (￡344,190,791) has been settled on 5 July.

On 27 May 2013 Diageo subscribed for a preferential allotment of new shares in USL amounting to 10% of the post-issue enlarged share capital at a total consideration of INR 20,927,196,000 (￡249,255,052).  Separately, Diageo acquired 58,668 additional USL shares in the Tender Offer for a total consideration of INR 85,778,082 (￡983,789). 

With this, Diageo now holds 36,359,192 shares representing 25.02% of the enlarged USL share capital at an aggregate cost of INR 52,358,532,642 (￡594,429,632). This represents a 18x multiple of USL’s EBITDA for the year ended 31 March 2013 and the transaction is expected to be eps accretive in year 2 and economic profit positive in year 5 assuming a 12% WACC.

With completion of the Share Purchase Agreement, the Shareholders’ Agreement between Diageo, United Breweries (Holdings) Limited and KFinvest is now effective. Diageo’s 25.02% shareholding in USL, together with the voting and other governance arrangements agreed with the UBHL group, including Dr Vijay Mallya’s continued role as Chairman of USL, will give Diageo control and enable Diageo to fully reflect the results of USL in its consolidated accounts, which it expects to do from 1 January 2014.  Prior to this, Diageo will equity account its shareholding in USL.

‘USL’s strong market-leading position combined with Diageo’s strength and capabilities opens an exciting and important new chapter for Diageo in the attractive Indian spirits market. Since we received approval for this transaction we have been getting ready for closing and integration. Having completed the share purchase, we will now begin the work to identify and capture the significant growth opportunities within this attractive market,’ said Ivan Menezes, chief executive of Diageo.

‘Through this acquisition we have transformed Diageo’s position in India, a market which is one of the biggest growth opportunities in our industry. India will become one of Diageo’s largest markets and with its increasing number of middle class consumers looking for premium and prestige local spirits brands as income levels rise it will also become a major contributor to our growth ambitions.’ JUNIOR