On a day when the benchmark Sensex closed in the red, stock prices of United Spirits Ltd (USL) and Karnataka Bank shot up six to seven per cent in intra-day trade, on reports of potential stake sale.
News reports suggested Diageo Plc would take a 20 per cent stake in Vijay Mallya’s USL and ICICI was likely to acquire Karnataka Bank. While the companies have confirmed ongoing talks in the former, both ICICI and Karnataka Bank have denied any negotiations.
The share price of USL, the Rs 9,200-crore flagship of the UB Group, has gained as much as 80 per cent during the past six months as Mallya engaged with Diageo for the second time in three years to offload a strategic stake.
While the management of USL and Diageo have been maintaining they are engaged in exploring options, they also said there was no guarantee of a deal. The senior management of the UB Group had been indicating there are a host of permutations and combinations to be considered and if a deal happens at all, it will take time.
Mallya could offload a part of his 28 per cent holding in USL and there is another three per cent in the form of treasury stocks, which could also be passed on. Later, there could be an open offer from Diageo. It is understood Mallya might be negotiating on a price range of Rs 1,400- 1,500 a share.
The entire protracted discussion, on since March, has been about whether Mallya will be ready to cede control of his flagship to salvage debt-laden Kingfisher Airlines. "Even if Mallya agrees to cede control, it will be pretty difficult for any overseas player to negotiate the maze of the Indian liquor industry without him," a senior official of the UB Group said.
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Meanwhile, the share price of Karnataka Bank rose to touch a 52-week high of Rs 127 from yesterday’s close of Rs 120. It ended with gains of two per cent at Rs 123.15. The shares of USL rose 4.1 per cent to close at Rs 1,275 on the BSE.
The share price of both companies saw a sharp rise when the broader equity index, the Sensex, fell 0.7 per cent to close at 18,577. The BSE Bankex, a gauge of the top banks, fell 0.8 per cent.
ICICI denied t was in talks with any bank for acquisition. Prior to this, there were rumours that Kotak Bank was looking to acquire Karnataka Bank, also denied by both parties.
Run-ups in specific counters on deal talks have caught the attention of the regulator.
On Thursday, a United Spirits spokesperson said the Securities and Exchange Board of India (Sebi) wrote to United Spirits "with a set of queries" after it had announced it was in talks to sell a stake to Diageo, declining to specify the nature of the inquiry. The queries came after shares in United Spirits surged 23 per cent in the four days leading up the September 25 announcement, jumping an additional 10 per cent the day the spirits maker disclosed the talks.
Last month, research firm Macquarie said acquisitions in the spirits industry indicated a potential deal value for USL in the range of Rs1,327-Rs1,555 a share. "We think the risk-reward (ratio) is unfavourable, as the current stock price is implying 75 per cent probability of the deal at the higher end of the valuation band. If the deal doesn’t happen, we see 65 per cent potential downside from current levels," Macquarie had said.
Taking management control could trigger Indian takeover rules that would force Diageo, the maker of Johnnie Walker Scotch whisky, to make an open offer for a further 26 per cent of United Spirits. A deal would allow Mallya to free up money for his struggling Kingfisher, while giving Diageo a stronger foothold in the world’s second-most populous country.