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Last Updated : Apr 09, 2013 11:05 PM IST | Source: CNBC-TV18

USL to open offer amid concerns; KFA CEO to meet DGCA

CNBC-TV18's Nigel D‘Souza and Kritika Saxena report that USL will launch the open offer amid concerns. Sources add a revival plan is in the offing in the KFA CEO's meeting with the DGCA tomorrow

After over three months of delay, Diageo's much-awaited open offer for United Spirits (USL) is slated for Wednesday. But with the market price of the stock almost double of the open offer price of Rs 1,440 per share, there are concerns about the success of the open offer, report CNBC-TV18's Nigel D'Souza and Kritika Saxena.

It was the largest inbound M&A deal of 2012. After several hiccups, the much-anticipated Diageo open-offer for USL will open on Wednesday, April 10 and end on April 26.

In November 2012, Diageo acquired a 27.4-percent stake in United Spirits triggering a mandatory open offer for 26-percent shareholding at a price of Rs 1,440 per share, which is much below the current market price of United Spirits.

As per regulatory filings in December 2012, around 14 large fund-houses including large names like HSBC, Goldman Sachs, Fidelity and Morgan Stanley, hold more than 1-percent stake in USL and their combined stake stands at about 25.6 percent stake.

For the open offer to be successful, it is necessary for most of these participants to tender their shares. Now as per the share purchase agreement (SPA) signed in 2012, if the open offer does not result in Diageo holding a majority interest in USL, United Breweries Holdings Limited (UBHL) will agree to vote its remaining shareholding in USL as directed by diageo for a four-year period.

According to the clause in the SPA, "In the event that Diageo does not acquire a majority interest, it is likely that a minimum shareholding of 25.1 percent, together with the voting arrangements and other governance arrangements agreed with the UBHL group and its relationship with Mallya as chairman of USL, would enable Diageo to reflect the results of USL in its consolidated accounts."

Now to sell stake to Diageo directly, United Spirits has to sell its promoter shareholding However, 97 percent of 27.58-percent shares held by USL promoters are pledged. This means that 27.51 percent of the promoter shareholding is pledged and cannot be sold directly.

A certain percentage of these shares have been pledged to lenders of Kingfisher Airlines (KFA) as collateral.  In the last two weeks, KFA lenders sold around 2 percent of the pledged shares for around Rs 140 crore to lower the shareholding down to 25.6 percent from 27.58 percent.

So far Diageo has maintained that it has no intention to revise the open offer price but if the offer fails, Mallya may be faced with another setback.

Meanwhile, KFA CEO Sanjay Agarwal is to meet the DGCA on Wednesday to discuss the revival plan. Government sources indicated to CNBC-TV18 that a fresh revival plan could be in the offing. The meeting will be closely watched by stakeholders like airport operators, aircraft lessors and employees to see if the plan finds any traction with the DGCA.

First Published on Apr 9, 2013 10:55 pm