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10 things to know about the United Spirits-Diageo deal

Diageo Plc on November 10 announced it will acquire 53.4 per cent stake in United Spirits Ltd (USL) in a multi-structured deal. Here are 10 things you should know -

K.R. Balasubramanyam | November 16, 2012 | Updated 11:43 IST

K.R. Balasubramanyam
The world's largest spirits maker Diageo Plc on November 10 announced it will acquire 53.4 per cent stake in United Spirits Ltd (USL) in a multi-structured deal. Here are 10 things you should know -

1. HOW BIG IS DIAGEO PLC?
Diageo Plc, headquartered in London, is the world's largest distiller by value. It had revenues of 10,762 million pounds in the year ended June 30, 2012. The multinational company has offices in about 80 countries and employs about 25,000 people. North America accounts for 33 per cent of its sales followed by Europe with 28 per cent. Dr Franz Humer is its Chairman and Paul Walsh is the CEO.

Diageo's brands include Johnnie Walker and Bushmills whiskies and Smirnoff and Ketel One vodkas. The company is listed on the London Stock Exchange and the New York Stock Exchange. BlackRock Investment Management (5.89 per cent), Capital Research & Management (4.99 per cent) and Legal & General Group plc (3.99 per cent) are its major sharehodlers.

2. WHERE DOES USL STAND GLOBALLY?
USL is the largest spirits company globally by volume, and is controlled by UB Group Chairman Vijay Mallya. It owns brands such as McDowell's whisky, Black Dog scotch and Vladivar vodka. USL sold 122.75 million cases in 2011/12.

3. HOW MUCH IS DIAGEO PAYING TO BUY USL?
It has budgeted Rs 11,166.5 crore to acquire a 53.4 per cent stake in USL's expanded equity. It will begin by buying a 19.3 per cent stake from the USL promoters and others at Rs 1,440 per share. The stake of the USL promoter group will drop to 14.9 per cent from 27.8 per cent now.

4. WHO ARE THE OTHER STAKE SELLERS?
USL Benefit Trust (2.64 per cent), Palmer Investment Group (3.35 per cent) and others (0.41 per cent). This non-promoter stake adds up to 6.5 per cent.

5. HOW WILL THE TRANSACTION PLAY OUT?
United Spirits will issue 10 per cent preferential shares (on an enlarged equity base) at Rs 1,440 per share to Diageo. This will increase the British company's total holding to 27.4 per cent.

Diageo would have spent a total of Rs 5,725.40 crore for this stake. While Rs 3,635 crore will go to the sellers of the 19.3 per cent stake, the rest will go to USL against the issue of fresh shares. After the preferential shares are issued, the UB Group's stake will drop to 13.4 per cent in the enlarged equity.

The preferential shares will help USL, as it is sitting on a debt of Rs 8,300 crore.

6. HOW WILL DIAGEO RAISE ITS STAKE TO 53.4 PER CENT?
Indian takeover regulations require entities that buy 25 per cent or more in a listed company to compulsorily make an open offer to shareholders for an additional 26 per cent - at the price of the earlier transaction. Thus, Diageo will have to make an open offer for an additional stake of 26 per cent from the market at Rs 1,440 per share.

7. WHAT IF DIAGEO IS NOT ABLE TO GET THE 10 PER CENT PREFERENTIAL ALLOTMENT?
In such an event, the UB Group has agreed to sell additional shares to Diageo at Rs 1,440 per share. This will ensure the latter has a minimum 25.1 per cent stake in USL. It will also enable Diageo report USL's results in its consolidated accounts.

8. WHAT IF DIAGEO FAILS TO GET A MAJORITY INTEREST IN USL AFTER SHARE PURCHASES, PREFERENTIAL ALLOTMENT AND OPEN OFFERS?
In such an eventuality, the UB Group will use its stake to vote in favour of Diageo for a four-year period.

9. WHEN WILL THE PROCESS OF DIAGEO TAKING OVER USL BE COMPLETE?
The process is expected to be completed by early 2013.

10. WHAT PROPORTION OF THE USL PROMOTERS' SHARES HAVE BEEN PLEDGED?
UB (Holdings) Ltd has an 18.03 per cent stake. Kingfisher Finvest India has a 9.69 per cent stake. Almost the entire portion of these stakes has been pledged. These shares are said to have been pledged to raise loans to fund Kingfisher Airlines.

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