Diageo Likely To Buy 51% Stakes In India’s United Spirits For $1.8 Billion

UB Group Shares Surge

 
on November 09 2012 3:35 AM

United Kingdom's Diageo Plc is likely to announce a deal Friday to buy a 51 percent stake in India’s liquor major United Spirits for $1.8 billion.

A crucial meeting is scheduled between the two parties Friday to finalize the deal and an announcement is expected to follow, the Economic Times reported quoting persons involved in the deal.

The talks for a deal between Diageo, the world’s largest liquor seller by value, and the Vijay Mallya-promoted United Spirits, the world’s largest maker of liquor by volume, have been going on for the last one year. In a filing to the stock exchanges in September, both the companies announced the ongoing discussions on the deal.

Reports say Diageo will purchase 51 percent stake in United Spirits while Mallya may continue as the chairman.

Diageo is likely to buy a part of the stake from Mallya and other promoters and also opt for an open market purchase.

United Spirits shares will be valued at a premium of about 12 percent over Thursday's closing share price of about $24.50 on the Bombay Stock Exchange, a Wall Street Journal report stated.

Mallya and his company United Breweries Holdings own 27.8 percent stake in United Spirits. United Spirits markets several liquor brands in India including Kingfisher beers, Signature, Bagpiper, Antiquity and Royal Challenge.

Funds For Kingfisher Airlines

Mallya has been trying to raise funds for the debt-ridden Kingfisher Airlines, and it is widely expected that he will utilize a portion of the money from the deal to infuse capital in the ailing air carrier.

Kingfisher Airlines may lose its flying license if it fails to bring in fresh funds by the end of November. Its license stands suspended now after it was forced to stop operations due to the lack of funds.

The carrier has a debt burden of over Rs. 80 billion and owes over Rs. 50 billion to its creditors and lenders.

However, according to the analysts, Mallya has no compulsion to use the money he receives from the Diageo deal and may even choose not to invest further in the loss-making aviation business.

Mallya made a similar statement last month and was quoted as saying that he had the business acumen to not use his hard-earned money in a loss-making air carrier, considering the hostile conditions prevailing in the aviation industry.

Nevertheless, a section of business experts feel that whether he brings in Diageo funds or not, he has a personal commitment and guarantee to the creditors to repay the loans and will be forced to bring in fresh funds.

Shares Of UB Group Of Companies Soar

Shares of the United Breweries, United Spirits and Kingfisher Airlines surged Friday over the news of the deal with Diageo.

Shares of United Spirits were up by 2.07 percent to Rs.1,371, United Breweries were up by 1.17 percent to 798.25 and Kingfisher Airlines rose by 3.25 percent to Rs.13.35 at 1.10 p.m. local time on the BSE.

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