Hong Kong/Mumbai: Diageo Plc has agreed to buy a 53.4 percent stake in Indian liquor baron Vijay Mallya's United Spirits Ltd for USD2.1 billion, giving the world's biggest spirits group a larger slice of a fast-growing market. (Agencies)
The purchase, which concludes an on-again, off-again courtship that began in 2008, would be the biggest inbound Indian M&A deal since British oil firm Cairn Energy Plc sold a majority stake in its Indian business to Vedanta Resources Plc last year.
The deal also comes amid increased brewery M&A activity in the Asia-Pacific region. Heineken NV won full control of the maker of Tiger beer in a SUSD7.9 billion (USD6.46 billion) deal in September. That was preceded by SABMiller Plc's AUSD11.5 billion (USD11.98 billion) acquisition of Foster's in December last year.
Diageo will initially acquire a 27.4 percent stake from the founders of United Spirits, and subscribe to new shares to be issued by the firm at 1,440 rupees (USD26.42) apiece. That's a premium of around 7 percent to the company's close on Thursday.
Diageo will then launch a mandatory open offer for an additional 26 percent from public shareholders at the same price, giving it a majority stake in United Spirits, Diageo said in a statement on Friday.
The agreement comes after months of haggling and will ramp up Diageo's presence in the world's largest whisky market. The deal will also help Mallya gain much-needed cash to reduce the debt borne by United Spirits and free up funds to revive his grounded Kingfisher Airlines Ltd.
"Some of the Mallya group companies have been in turbulence for some time. This is his final opportunity to revive the fortune of the group," said Jagannadham Thunuguntla, head of research at SMC Investments and Advisors Ltd in New Delhi.
Shares in Mallya-controlled companies rose after Reuters reported the deal terms earlier on Friday, citing an internal memo.
Kingfisher gained 4.7 percent, while United Spirit ended 1.3 percent higher and United Breweries Holdings Ltd rose 3.3 percent. By contrast, the benchmark Bombay share index close nearly 1 percent lower.
Under the terms of the deal, Mallya would remain as chairman of United Spirits.
United Breweries will have 14.9 percent of the current share capital in United Spirits after the deal, according to the statement.
The two companies said in September that they were in talks about a possible deal.
Diageo, the maker of brands including Johnnie Walker whisky, Guinness beer and Smirnoff vodka, held talks with United Spirits in 2008 that collapsed the following year.
Mallya has been scrambling for nearly a year to raise funds for Kingfisher, prompting speculation that he may offload a stake in United Spirits or United Breweries Ltd, the maker of Kingfisher beer.
Some analysts, however, said the deal may not be enough to revive Kingfisher Airlines. The Centre for Asia Pacific Aviation has said a fully funded turnaround for Kingfisher would cost at least USD1 billion.
"At this moment, Kingfisher may be a difficult cause to revive. As other UB group companies are also quite overleveraged, I think they will prioritize restructuring other group companies ahead of Kingfisher," Thunuguntla said.
Shares in United Spirits have nearly tripled this year, with much of the gains coming in the past four months amid market talk about a possible deal with Diageo.
Diageo is expanding into fast-growing emerging markets with recent acquisitions in Brazil, China and Turkey and expects half of its turnover to come from these markets by 2015 compared to nearly 40 percent currently.
Shares in Diageo were up 0.5 percent in London trading.
Hong Kong/Mumbai: Diageo Plc has agreed to buy a 53.4 percent stake in Indian liquor baron Vijay Mallya's United Spirits Ltd for USD2.1 billion, giving the world's biggest spirits group a larger slice of a fast-growing market.