Nov 12, 2012, 05.49 PM IST | Source: Moneycontrol.com

United Spirits hits new high as street cheers Diageo deal

Shares of United Spirits jumped over 35 percent to hit a new high of Rs 1,632.55 in morning trade on Monday, as the street gave a big thumbs up to its deal with Diageo, which will see the world's largest spirits company acquire a majority stake in the Vijay Mallya's crown jewel.

Moneycontrol Bureau

Shares of United Spirits jumped over 35 percent to hit a new high of Rs 1,632.55 in morning trade on Monday, as the street gave a big thumbs up to its deal with Diageo, which will see the world's largest spirits company acquire a majority stake in the Vijay Mallya's crown jewel.

On Friday, after months of speculation, United Spirits, United Breweries Holdings and Diageo, announced a complex deal , which will see Diageo initially acquire 27.4 percent stake in United Spirits for Rs 1,440 a share (19.3 percent from UB Holdings and several United Spirits subsidiaries, and preferential allotment of new shares amounting to 10 percent of post-issue enlarged share capital).

This will then trigger an obligation on Diageo to launch an open offer to acquire 26 percent stake held by shareholders. On completion of the share purchases and if the open offer is fully subscribed then Diageo will hold 53.4 percent of United Spirits, at an aggregate cost of Rs 11,166.5 crore.

Kimg Eng Securities India, a unit of Malaysia's Maybank Investment Bank, upgraded United Spirits to "buy" from "hold," terming the deal as a game changer.

"For the medium term, upside to United Spirits will emerge from Diageo's premium global brands and export opportunity. With Diageo as its promoter, investor concern on corporate governance and debt will disappear, triggering a re-rerating in the stock," it said.

Once the deal is done, around Rs 3,300 crore will flow into United Spirits, a large part of which will be used to repay its huge debt, which is currently at over Rs 8,000 crore.

"Debt will come down substantially and that will lead to significant reduction in interest costs," said Manish Jain and Anup Sudhendranath of Nomura Financial Advisory and Securities India.

It will also gain from Diageo's global presence and premium brands, at a time, there is a lot of premiumisation happening in the Indian market too.

"The deal will be positive for United Spirits as it will strengthen the company's presence in the premium portfolio. We believe the foreign management could improve operational efficiency and boost margins. United Spirits will also enjoy benefits of scale by setting up bigger manufacturing plants and could gain access to some international markets," said Abneesh Roy and Hemang Gandhi of Edelweiss Securities.

Nomura and Edelweiss, both, have a "neutral" and "hold" rating respectively on United Spirits.

Unied Spirits shares hit a 52-week high of Rs 1,874.60 on NSE on Monday. The stock finally closed at Rs 1,832.95, up over 35 percent.

UB Holdings stock price

On April 23, 2014, United Breweries Holdings closed at Rs 29.00, down Rs 1, or 3.33 percent. The 52-week high of the share was Rs 42.70 and the 52-week low was Rs 17.85.


The company's trailing 12-month (TTM) EPS was at Rs 169.44 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 0.17. The latest book value of the company is Rs 211.90 per share. At current value, the price-to-book value of the company is 0.14.

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