 "Vijay Mallya waves in the paddock during the third practice session of the Indian F1 Grand Prix at the Buddh International Circuit in Greater Noida, on the outskirts of New Delhi")
Vijay Mallya, who built United Spirits as India’s largest liquor company, has exited the company after he sewed a deal with its majority owner Diageo that absolves him from claims over fund diversion from the liquor firm to other UB group firms, including Kingfisher Airlines.
Diageo will pay $75 million or nearly Rs 500 crore over five years to Mallya to bind him with a non-interference, non-compete contract, globally except in the United Kingdom, sealing his fate as a liquor baron in the near future. In addition, the firm’s vodka brand Smirnoff has committed $75 million as a sponsor to Force India Formula 1 team, co-owned by Mallya for five seasons.
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“With his resignation, Dr Mallya no longer has any authority or responsibility in USL,” said USL’s head of corporate relations, Abanti Sankaranarayanan over a conference call.
The deal ends a bitter boardroom battle that began in April 2015, when the board of United Spirits sought to evict Mallya over the irregularities that cost the firm Rs 7,200 crore in losses. At the same time, Mallya has insulated Diageo and USL from any legal challenges, arising out his disputes with banks over his defaults.
Sankaranarayanan said that the deal would help shareholders of USL, while the company escapes a prolonged legal battle that would have arisen if it had pursued its case against Mallya.
The United Spirits stock has gained 17.5 per cent over the past week, while the Sensex declined 2.85 per cent. The USL stock closed at Rs 2,664.75, up Rs 71.30 or 2.75 per cent on Thursday ahead of the deal announcement with Mallya.
Mallya holds 3.99 per cent stake in USL with nearly half pledged with banks and is prohibited to buy additional shares in the company for five years. “The time has now come for me to move on and end all the publicised allegations and uncertainties about my relationship with Diageo and United Spirits Limited. Accordingly, I am resigning my position with immediate effect,” Mallya said in a statement. I am pleased to have been able to agree terms with Diageo and United Spirits Limited. The agreement we have reached secures my family legacy.”
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Mallya, a Rajya Sabha MP who had hinted at quitting USL and retire in December last when he turned 60, plans to spend more time “closer to his children” in England. He earns the title of founder emeritus, USL and chief mentor of T20 cricket team Royal Challengers, while his son Sidhartha would be on the board of the cricket team for two years.
“India is an exciting growth opportunity, and USL has the management team, strategy and capability to deliver on that opportunity. The agreement announced today is in the best interests of both Diageo and USL and allows USL to build on its strong platform in one of the biggest spirits markets in the world,” Ivan Menezes, chief executive of Diageo, said in a filing in the London Stock Exchange.
“It also brings to an end the uncertainty relating to the company’s governance. This will allow the company to prosper and build on the great platform that we have already created in this exciting market,” said USL Managing Director and Chief Executive Officer Anand Kripalu in a statement.
While Diageo gets a deal from Mallya, a consortium of banks that Mallya owes Rs 8,700 crore are struggling to get their money back. State Bank of India, Punjab National Bank and United Bank of India have declared Mallya as wilful defaulter, which the liquor baron is contesting.
The loans were taken to run Kingfisher Airlines, which Mallya started on the 18th birthday of his son Sidhartha Mallya and the failure of the airline literally caused Mallya his empire.
