Diageo's bid for a majority stake in United Spirits is set to fail
That's tough: stumbling in the home straight. For years, Diageo, the world's number one drinks group, has tried to buy part of Vijay Mallya’s United Spirits group. In November 2012 it finally managed to clinch a deal for a 53 percent stake in the company.
That bid for majority control is likely to fail, leaving Diageo with less than a third of India’s largest distiller, media reported in early April 2013.
As part of the deal, Diageo made an open offer for 26 percent of the Asian distiller. However, United Spirits’ share price in April is 25 percent above the price Diageo has offered to pay per share. Market observers therefore think it unlikely that anybody is willing to sell their shares right now. Diageo is under pressure to raise its offer but this appears equally unlikely.
Being a minority holder in the maker of Bagpiper and McDowell’s whiskey is less preferable for Diageo than getting a majority share and immediately being able to call the shots. Most probably Diageo will get what it wants, but it might take a lot longer than planned.
Diageo’s open offer launched on 10 April ends on 26 April 2013.
Under the terms of the November deal, Diageo would get 19 percent from Mallya and others. It would also be allotted preferential stock that would amount to 10 percent of United Spirits enlarged share capital. Another 26 percent would come from the open market if the tender offer was fully subscribed, it was reported.
Without a majority holding Diageo is “slightly reliant on Mr Mallya’s support, and that’s not quite as secure as having your own shares,” said Ian Shackleton, a Nomura analyst. Mallya’s UB Holdings has said it will retain a 15 percent stake in United Spirits after the deal is completed.
To make matters worse, Diageo also faces risks completing its purchase of Mr Mallya’s shares. Mr Mallya offered United Spirits stock and other assets as collateral for his loss-making Kingfisher Airlines. The airline has halted flights since October last year. Banks have already started selling United Spirits shares that were pledged to them. That's why several sources say Mr Mallya may no longer own all the shares he has promised to Diageo.
Oh dear. Or rather, what a mess.
