The key points of the agreements between Diageo, UBHL and USL are:
- Completion of the acquisition of shares from the UBHL group, the USL Benefit Trust, Palmer Investment Group Limited and UB Sports Management (two subsidiaries of USL) and SWEW Benefit Company (a company established for the benefit of certain USL employees) is subject to a number of conditions. These conditions include the release of all security interests over the USL shares to be acquired by Diageo. They also include the receipt of mandatory regulatory approvals (including competition approvals) in India and elsewhere.
- Diageo has reached agreement with USL under which the shareholders of USL will be asked to approve (by special resolution) the preferential allotment of new shares to Diageo, at a price of INR 1440 per share. The price is subject to applicable pricing rules under Indian regulations.
These new shares will amount to 10% of USL’s post-allotment enlarged share capital. UBHL will vote in favour of the resolution. The preferential allotment is subject to certain conditions including USL shareholder approval and if successful, combined with the above acquisition of shares, would result in Diageo owning 27.4% of the enlarged share capital of USL.
- The preferential allotment and the acquisition of shares from the USL subsidiaries will enhance USL’s financial strength, including a reduction in USL’s net debt.
- Total consideration for the aggregate shareholding, representing 27.4% of the enlarged USL share capital, acquired through the arrangements for the acquisition and the preferential allotment described above would therefore be INR 57,254 million (approximately £660 million).
- The combination of the acquisition and the preferential allotment trigger an obligation on Diageo to launch a mandatory tender offer for a minimum of 26% of the issued share capital of USL. Diageo will launch a tender offer to acquire a maximum additional interest in USL of no more than 26% of the enlarged USL share capital. The tender offer will be at a price of INR 1440 per share, representing a premium of over 35% to the closing price of USL’s shares on 24 September 2012, the last business day before the announcement that Diageo, UBHL and USL were in discussions regarding possible transactions. At that price, the total consideration under the tender offer (assuming full take-up) would be INR 54,411 million (approximately £625 million).
- Following the formal documentation review process of SEBI, the Indian takeover regulator, Diageo will post the tender offer documentation to USL shareholders. Completion of the acquisition and tender offer is expected to occur in the first quarter of 2013.
- Diageo will fund the acquisition through existing cash resources and debt. Diageo believes that its financial strength supports its current single A credit rating and will hold discussions with the rating agencies as a consequence of this announcement.
- In certain circumstances where the preferential allotment is not successful (including where it is not approved by the shareholders of USL), UBHL has agreed to sell additional shares in USL to Diageo at a price of INR 1440 per share to ensure that Diageo has a minimum shareholding of 25.1%.
United Spirits has 22 millionaire brands
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| Scotch Whisky | Black Dog / Dalmore / Jura / Whyte & Mackay | |||||||||||
| Whisky | Royal Challenge / Bagpiper / McDowell's No 1 / Signature / Antiquity | |||||||||||
| Brandy | McDowell's VSOP | |||||||||||
| Rum | Celebration Rum | |||||||||||
| Vodka & Gin | Pinky / Romanov / Vladivar / White Mischief | |||||||||||
| Wine | Bouvet Ladubay/ Four seasons | |||||||||||
- In addition, if the share purchase agreement, the preferential allotment and the tender offer do not result in Diageo holding a majority interest in USL, UBHL has agreed to vote its remaining shareholding in USL as directed by Diageo for a four year period. UBHL will also vote its USL shares to enable Diageo to ensure that its nominees are appointed to the USL board.
- In the event that Diageo does not acquire a majority interest it is likely that a minimum shareholding of 25.1%, together with the voting arrangements and other governance arrangements agreed with the UBHL group and its relationship with Dr Mallya as Chairman of USL, would enable Diageo to reflect the results of USL in its consolidated accounts.
- The tender offer will be governed by the applicable takeover regulations of India and is subject to certain conditions.
Also read: Diageo seals deal with Vijay Mallya to pick up 53.4% stake
