Diageo pays good money to see the last of Mr Mallya
What a mess. British drinks group Diageo has agreed to pay USD 75 million and provide other incentives to replace the chairman of its India business, Vijay Mallya, in exchange for his resignation from United Spirits, media reported at the end of February 2016.
The deal between one of India’s most colourful businessmen and the world’s major drinks group tries to close the book on a protracted and highly publicized spat over allegedly improper payments the India unit made to other businesses run by Mr Mallya.
Diageo agreed to pay Mr Mallya USD 40 million immediately, with the remainder of the money paid over a five-year period. It also agreed to provide him with an honorary title and a non-compete arrangement in exchange for him agreeing to resign as chairman and nonexecutive director and from the boards of other United Spirits Ltd. companies.
He will be succeeded by Mahendra Kumar Sharma, an independent director and chairman of United Spirits’ audit committee.
Between 2013 and 2014 Diageo struck a deal with Mr Mallya that allowed it to amass a 54.78 percent stake in the Indian company he built into a whiskey giant over decades.
United Spirits’ board last year demanded that Mr Mallya resign after an internal investigation by Diageo found that United Spirits funds had been improperly advanced to his struggling Kingfisher Airlines and other businesses run by Mr Mallya.
But Mr Mallya refused to resign, telling media that doing so would have been tantamount to an admission of guilt regarding the allegations, which he denied.
As part of the arrangement, United Spirits has agreed to allow Mr Mallya or a party he nominates to buy as many as 13 properties in India from United Spirits at a discount, which has got the independent shareholders in United Spirits up in arms.
Also in January 2016 Diageo was forced to pay back a USD 135 million loan owed by Watson, a business affiliated with Mr Mallya. Diageo had guaranteed the loan as part of the 2013 deal. As the UK’s Sunday Times has the story, Diageo will try to get this money back by raiding Watson’s assets, which include a stake in United Breweries (which is part-owned by Heineken), and control of Force India Formula One team.
This being India, Diageo at the same time has extended Smirnoff’s sponsorship of the Force India Formula One team for the next five seasons. The sponsorship is valued at USD 15 million a season.
Indian media questioned the settlement. Why give Mr Mallya good money so that he steps down? After all, was not Mr Mallya found a “wilful defaulter” by the State Bank of India over unpaid dues by his Kingfisher Airline which has not flown since 2012?
This will not be the last you have heard of Mr Mallya.
