In another push to increase its stake in United Spirits Ltd, Diageo picked 2.4 per cent stake in the Indian spirits company for Rs 866 crore, raising its stake to 28.8 per cent. This is the second time Diageo has made an effort to gain a larger stake in United Spirits through an open-market share purchase and with the buy on Friday, Diageo has exercised over 75 per cent of its annual right to acquire a larger stake through creeping acquisition.
Diageo had bought a 1.35 per cent stake in November for Rs 472 crore from Morgan Stanley Asia (Singapore) PTE at Rs 2,440 apiece. Morgan Stanley Asia (Singapore) still holds a 2.22 per cent stake as of December. With the purchase, Diageo has forked out Rs 1,338 crore for a total of 3.75 per cent stake after spending Rs 5,200 crore for a 25.02 per cent stake as part of the initial transaction. In the two purchases from the open market this financial year, Diageo has paid more than a 70 per cent premium on the initial price at which it had acquired the shares. The shares of United Spirits closed at Rs 2,474.45 apiece, up 1.4 per cent on Friday on the BSE. The 3.5-million shares purchased on Friday by Relay BV, a wholly-owned subsidiary of Diageo in India, at Rs 2,474.45 apiece, were part of a 2.5 per cent stake offloaded by Oppenheimer Funds at Rs 2,474.25 apiece. Oppenheimer continues to hold a 0.23 per cent stake in the firm. The purchase on Friday is the first after the decision of the Karnataka high court in December that struck down seven per cent of the stake purchase deal that gave the world's largest distiller a controlling stake in UB Group's United Spirits. Since then speculation has been Diageo may find ways to shore up its stake even if at a higher price than the Rs 1,440 a share it had paid for a 25.02 per cent stake in July.
Through United Spirits, Diageo has access to a route-to-market that pans across 65,000 points of sale that represents 98 percent distribution across the country and the sales agreement has already begun to yield results. On Thursday, Diageo announced it saw a 35 per cent spike in net sales in India, as against the 1.3 per cent average growth in net sales across emerging markets.
Diageo has exhibited a persistent tendency to pick up a majority stake in partner companies in its negotiated mergers. In its bid to acquire a majority holding in Sichuan Chengdu Quanxing Group in China, the company steadily bought shares over a series of transactions in 6 years to gain a 93 per cent stake from its initial holding of 43 per cent.
In India too, Diageo had initially announced plans to acquire a 53 per cent stake in United Spirits for about Rs 11,000 crore in November 2012. However, Diageo was unable to achieve its target with its open offer to acquire 26 per cent of USL shares at Rs 1,440 per share meeting a poor response from investors.
A number of USL shares encumbered with banks also prevented Diageo from picking up its desired stake in the company. Banks refused to release shares of USL pledged for loans to fund UB Group's debt-ridden Kingfisher Airlines Ltd. Diageo is still fighting for a 2.38 per cent stake pledge release from IDBI and Punjab National Bank, citing settling of dues.
