Can raise stake via creeping acquisition, say lawyers; alternatively, messy fight likely in SC
British firm Diageo Plc, whose stake in United Spirits (USL) is now reduced to below 20 per cent, following the Karnataka High Court's judgment on Friday, has the option to again raise its holding via creeping acquisition. Or, to launch yet another open offer for USL shareholders, say lawyers.
"The company should first appeal against the HC order in the Supreme Court. And, technically, the creeping acquisition route is open to them, which allows a promoter to raise stake by five per cent annually," said R S Loona, managing partner of Alliance Corporate Lawyers. "But Diageo has to take a call on whether this makes business sense."
Creeping acquisition will be costlier, as the USL share price had shot up 85 per cent to Rs 2,670 a share as on Friday, compared to the Rs 1,440 a share it paid last year while acquiring from Vijay Mallya. The option is to launch another open offer, based on the current market price, and negotiate with institutional investors to sell their shares. Diageo's first open offer, in April this year, failed to generate any interest among USL shareholders, as the market price was far above the offer price.
The HC on Friday ruled as void the sale of 6.9 per cent stake in USL by Vijay Mallya's United Breweries Holdings (UBHL) to Diageo. The court overturned an order, passed in March by a single judge in the company court, allowing UBHL to sell a significant part of its stake in USL to Diageo. UBHL was guarantor to Kingfisher Airlines' loans, along with Mallya; hence, lenders to the airline took UBHL and Mallya to court to get their loans back. With this order, Diageo's stake is now down from the earlier 26.4 per cent in USL (see chart).
UBHL, as part of the agreement between UB Group and Diageo, signed in November 2012, sold 6.9 per cent of its 14.16 per cent holdings in USL for Rs 1,460 crore, only to have the bankers and lessors to Kingfisher sue it, since the USL shares were pledged. The airline owes close to Rs 7,000 crore and has defaulted on payments.
For Diageo, now caught in litigation between Mallya and Indian banks, the low stake in USL is a great cause of worry. With just 19 per cent stake as compared to its initial plans to buy 53.4 per cent, the litigation ahead can be a long and winding road. The British company said on Friday that it wanted to file a plea in the Supreme Court, along with UBHL.
Another option for Diageo is to buy out Srei Infrastructure's 4.9 million shares in USL, worth Rs 1,300 crore as of Friday. Srei had acquired these shares along with Kingfisher loans worth Rs 430 crore from ICICI Bank last year. As the public sector banks have a second lien on these shares, whatever extra over Rs 430 crore is raised by Srei will go to the former.
DEAL IN DOLDRUMS
| 9 November - UBHL and USL announce an agreement to sell 27.4% stake in USL to Diageo Plc at Rs 1,440 a share
| 24 March - Company court allows UBHL to sell its shares in USL. The permission was granted in lieu of a deposit of Rs 250 crore made with the court to take care of the winding-up petitions
| 10 April - Open offer triggered for additional 26% as Diageo aims for 53.4% of USL
| 26 April - Open offer closes with than 1% being tendered in
| 4 July - Diageo announces completion of stake purchase from UBHL, USL with 25.02 % as two banks refuse to part with 2.38% encumbered shares
| 26 November - Diageo picks up additional 1.4 % from the market, taking total stake to 26.4%
| 20 December- Karnataka High Court annuls United Spirits stake sale to Diageo; Mallya & Diageo say they will go to Supreme Court
