For several months, the stocks of UB group companies have seen high speculation from traders. On Thursday’s announcement of a possible stake sale in United Spirits led to a rise in the shares of all UB group companies. A deal between global spirits major Diageo and United Spirits was expected to be announced this week, news reports suggested.
Share prices of group holding company United Breweries Holding soared 4.36 per cent to Rs 131 on the BSE, while the United Spirits stock rose 3.32 per cent to Rs 1,343 and Kingfisher Airlines shares rose 0.47 per cent to Rs 12.89.
Markets have been abuzz with speculation Vijay Mallya would announce the sale of stake in United Spirits to global spirits major Diageo for $2 billion. Mallya holds 27.78 per cent stake in United Spirits, while his holding company, United Breweries, holds 18.03 per cent. on Thursday, United Spirits opened at Rs 1,290 on the BSE, rising seven per cent in intra-day trade.
Since September 25, the United Spirits and United Breweries stocks rallied 28 per cent and 20 per cent, respectively. This followed United Spirits and Diageo confirming they were in talks for a deal.
Discussions for a possible stake sale, which started in March, have been driving the United Spirits’ stock phenomenally. In the past seven months, it has risen about 80 per cent. As of on Thursday, United Spirit’s market capitalisation stood at about Rs 17,600 crore. Mallya, along with his promoter group companies, owns about 28 per cent; his stake is worth about Rs 4,900 crore.
The bone of contention, in any possble deal, is management control. Diageo is pushing for control of USL, while Mallya has been resisting this. If Mallya agrees to cede control, he is likely to offload a significant portion of his 28 per cent stake to Diageo in the first step. Also, if Mallya agrees to the deal, Diageo would pick up treasury shares worth Rs 1,000 crore, raising its stake to more than 25 per cent. After this, there may be an open offer.
Diageo would also have to decide its stand on United Spirits owning Scotland-based Whyte & Mackay (W&M). “If Diageo gets to control United Spirits and subsequently W&M, the anti-monopoly body in the European Union would be forced to stop the deal. However, United Spirits and Diageo can request for an 18-month timeframe to reduce their holding in W&M,” said an industry analyst.
Mallya has been racing against time to raise resources for his debt-laden Kingfisher Airlines. Lenders have said it was high time he infused equity into the carrier. If Mallya succeeds in striking a deal with Diageo, he would be able to channel some resources to Kingfisher Airlines. However, in the recent past, Mallya has said he need not be forced to sell “family silver” to revive the airline. “The deal, if at all, will be to enhance shareholder value,” he had said.
