Investors high on Diageo offer for 26% more in USL

Sixty-eight million shares tendered, against the required 37.7 million

Diageo’s Rs 11,500-crore open offer for an additional 26 per cent stake in United Spirits Ltd (USL), India’s largest spirits company, is understood to have received an overwhelming response. According to data available with people involved in the open offer, 69.9 million shares were tendered, against the required 37.7 million, an acceptance ratio of 55.18 per cent.

This means for every two USL shares tendered, one share was accepted.

Diageo, which had earlier acquired about 29 per cent in USL for about Rs 6,500 crore, launched its second bid at Rs 3,030 a share for an additional 26 per cent stake on June 6, which closed on Thursday (June 19).

NEW KING OF GOOD TIMES

• 69.9 million shares tendered, against the required 37.7 million, an acceptance ratio of 55.18%
• Diageo set to have 53.4 per cent stake in USL; USL’s balance sheet will be integrated into Diageo’s
• After the offer, Diageo will have invested Rs 18,000 crore in India as part of its emerging markets push
• Diageo plans to derive 10 per cent of its global sales from India in the near future

Diageo said it wouldn’t comment on the response to its open offer, adding it would be able to do so only after a complete scrutiny.

The good response means Diageo will hold a controlling stake of about 55 per cent. This will probably be effective from July 1, the beginning of a new financial year for Diageo globally. USL will be a subsidiary of Diageo and the balance sheets of the two will be integrated. With about seven per cent stake, UB Group chief Vijay Mallya will continue to be USL chairman.

Earlier, a few unsecured creditors to UB Holdings, the UB Group holding company, had moved the Karnataka High Court, saying 6.86 per cent of Diageo’s stake in USL was null and void. Diageo, along with UB Group, has appealed against this in the Supreme Court. It is expected the apex court will announce a decision on the matter in September.

Diageo has been betting aggressively on emerging markets. After the open offer, Diageo will have invested Rs 18,000 crore in India. It is believed the company plans to drive 10 per cent of its global sales from India.

If the tender offer is fully subscribed, the total consideration payable at the announced price for Diageo’s increased stake will be 38 times USL’s earnings before interest, tax, depreciation and amortisation for the year ended March 31, 2013, on a consolidated basis. Diageo’s total investment in USL— Rs 18,000 crore —is expected to be earnings-per-share (EPS)-positive in FY22, the seventh full financial year after the completion (assuming 12 per cent weighted average cost of capital), and EPS-accretive in the year ending June, 2016.

On Thursday, the USL stock fell as much as 7.2 per cent to close at Rs 2,601.20 on the National Stock Exchange, against the Nifty’s 0.23 per cent loss.