It may well be called the 'United Spirits of Diageo', now that Mallya has finally agreed to cede control of United Spirits to Diageo. Technically though the name will not change from United Spirits Limited, the sense in the towering head office of UB Group in Bangalore is one of mixed emotions.
"At the end of the day, we have ceded control. Somehow we should have avoided that," one of the senior UB Group officials told Business Standard.
It may have been an extremely difficult situation for Mallya to cede control and would have spent many a sleepless night to agree to this transaction. But as things would have it, there were not many options before him. While there was a clear strategic intent to get on board a global partner, the ceding control at the end of the day was a major call that Mallya has finally taken, the issue of which was infact highlighted by Diageo CEO Paul Walsh himself to a global media house.
During the course of negotiations between Diageo and Vijay Mallya, Walsh in an earlier interview with 'Financial Times' had said that "Mallya is not at the moment interested to cede control." But as Mallya told the investors yesterday, he respected Diageo's intent to consolidate USL numbers into their balance sheet and he wholeheatedly accepted that call.
"I will embarce Diageo's brands whole- heartedly in India and work to make their brands into leadership positions in India in their respective segments," Mallya said.
Mallya himself with his United Spirits has been trying hard to premiumise its offerings for the past many years and results are slowly reflecting the efforts. The premium portfolio of USL during last fiscal grew by a healthy 17 per cent while the Indian spirits market grew by 10 per cent. The technical and innovation prowess of Diageo to drive premiumisation will be pretty much handy for USL to drive this effort further.
In a related aspect, while technically the inflow of Rs 2400 crore into UB Holdings can be used to infuse equity into Kingfisher Airlines, it is understood that for the USL titles to be cleared for the sale, UBHL will be substantially using these resources to pay down its Rs 3000 crore debt.
"After we bring down the leverage in UBHL, we will be in a much better position to negotiate with stakeholders including lenders on various options for Kingfisher Airlines. We will now be on a better platform for the negotiations and we will try on how to address that aspect," a Board member UB Holdings told Business Standard.