David Moir/ReutersA Diageo facility near Glasgow, Scotland, in this Aug. 26, 2010 file photo.Diageo, the British spirits giant, and United Spirits, the Indian liquor company controlled by Vijay Mallya, announced a $2 billion deal Friday expected to give the British company just over half of the Indian company.
The terms of the multi-stage deal, announced after the market closed on Friday, are complicated. Here's how it works:
Stage One: Diageo will acquire a 27.4 percent stake in United Spirits at 1,440 Indian rupees per share, valuing the total stake at £660 million ($1.1 billion).
Some of this sta ke acquisition, 19.3 percent, will come from companies which are subsidiaries of United Spirits, or were established for the benefit of United Spirits management:
They are: UBHL group, the USL Benefit Trust, Palmer Investment Group Limited and UB Sports Management and SWEW Benefit Company. UBHL Group, the holding company for Mr. Mallya's entire conglomerate, will continue to have a 14.9 percent holding in United Spirits after this initial acquisition.
After this 19.3 percent acquisition, shareholders of United Spirits will be asked to approve a “preferential allotment†of shares to Diageo at the 1,440 Indian rupees per share price, to bring the total to 27.4 percent. If shareholders don't approve this, UBHL Group has agreed to sell shares of United Spirits to Diageo to reach 25.1 percent.
Stage Two: Diageo will “launch a Mandatory Tender Offer†to the public shareholders of United Spirits for an additional 26 percent stake in the company, also at 1, 440 Indian rupees per share.
This offer is mandatory under Indian market regulations. The price represents a premium of 35 percent over United Spirits trading price on September 24, the day before an announcement that the companies were in a talks about a deal, the companies said. The second stake purchase is worth about £625 million.
If, for any reason, Diageo does not get a majority stake in United Spirits after stage one and stage two have been attempted, UBHL has agreed to vote its shareholding in United Spirits as directed by Diageo for four years, which would essentially allow Diageo to run the company.
After the deal closes, expected in the first quarter of 2013, Mr. Mallya will be chairman of United Spirits. The chief executive of United Spirits has not been named.
