The landmark Rs 11,166 crore deal between United Spirits and Diageo that got inked during the end of last week is among the top two cross border transactions in India so far during 2012. P A Murali, Joint President & Chief Financial Officer of the $2 billion United Spirits Limited, was the key person along with Vijay Mallya who put this complex deal through to its logical conclusion. Murali haf earlier played a vital role in many of USL’s key global transactions including the acquisition of Whyte and Mackay Group, UK, Bouvet Ladubay SA, France and Liquidity Inc, USA. In an interview from London with Raghuvir Badrinath, Murali detailed how finally the transaction was ironed out.
Given the aspect that you were one of the key players in this important transaction, how do you feel after clinching it?
The feeling is one of a sense of achievement, especially because this is a dream combination which is a win-win situation for both the parties. The fact that the deal was done at a price which was 113% over the last unaffected price and 87% over the last 52 week average price and 31% over the SEBI Floor Price for Open offers on the stock bears testimony to the value that this transaction has brought to the table for all stakeholders.
What were the major hurdles you faced and how did you cross them?
This is a complex cross border deal where the requirements of all the parties concerned need to be borne in mind. The complexity being borne out by the fact that while the true nature of a partnership needs to be preserved and captured without apparent loss of control, Diageo's need to demonstrate the path to control over a period mainly to facilitate consolidation with their Balance sheet had to achieved. But the thread of partnership is consistently interwoven through the agreements.
The seeds of this deal, according to Vijay Mallya, was sown nearly 6 years ago. Mallya and Diageo come close enough to a deal during 2008-09, but could not see it through. What were the key elements that fell in to place this time around?
We never lost touch with each other after the last discussions in 2008-09, which unfortunately, fell through. I didn't see any different level of intensity this time compared to last time. There was an unwavering purpose on approach to reaching the deal and I should say at no point in time was there an effort to take undue advantage of a particular situation over the last several months of engagement. I am sure you are aware that United Spirits has several other options to deleverage its balance sheet and therefore this deal is more about a strategic partnership than about having to raise funds. The fact that in terms of transaction multiples, this deal is at a multiple of 21 times EBITDA whereas the global median is 13.6 and the PE is at 48.3 while the global average is just 19 goes to prove that the transaction was at more than fair and full value for an entry which has an important strategic value.
Did Diageo agree to engage seriously with USL with a clear intent that they want a majority control or did it evolve at a later stage?
The fundamental philosophy of all of Diageo's acquisitions about the need to consolidate the numbers was laid out right from the beginning and therefore it presented a unique challenge to create a true partnership on the back drop of such an imperative need.
The aspect of how Diageo will address the issue of Whyte & Mackay is not yet clear. The Office of Fair Trade in the UK will surely raise the issue that Diageo will get to control W&M and this will lead to monopolist situation... How does Diageo intend to address that?
From my point of view, Whyte and Mackay is an integral and important part of USL and the transaction. It is too early to pre judge any move or conclusion on this.
At the end of day even if Vijay Mallya says this is a partnership and embellishing family jewels, USL will be managed by Diageo. What were the top few critical aspects which pushed the management of UB Group to accept the offer from Diageo and offer them majority control?
As I said earlier, except for the strategic need to get a partner of the high pedigree and repute of Diageo, there was no compulsion to do a deal. The fact that we have always believed that both our alcoholic beverage businesses needed a strategic partner to maintain its leadership position for the very long haul in a very competitive environment was re-emphasized by Mr Mallya several times in the past. This deal with Diageo and that of United Breweries in the past with Scottish and Newcastle / Heineken is a manifestation of that longstanding belief. The fact that there was and has been no change in management in United Breweries over the past several years coupled with the fact that neither has Diageo expressed any desire or plan to overhaul the current management of USL goes to prove what a fine and thoroughly professional management team has been built and nurtured by Mr Mallya over the years. Most importantly, the fact that Mr Mallya will continue in his current role as Chairman of the company to steer it to greater heights also drives home the point that the underlying intention of the transaction is one of a partnership and not of acquisition.