USL is working out a proposal to issue fresh preferential issues to Diageo to help them increase their stake in United Spirits Limited. This fresh issue comes in the wake of Karnataka High Court order calling UBHL’s 6.97 percent stake sale to Diageo, which was part of share purchase agreement as null and void and cancelling it. So through this fresh issue, Diageo will get a chance to increase their stake back to more than 25 percent. Although the case is now in supreme court, this fresh new preferential issue is not going to have any legal overhang from the earlier transaction being considered ‘null and void’, since the 6.97 percent were shares pledged with creditors for loans given to kingfisher, and now they will be offering a fresh new issue.
On 9 November 2012, Diageo agreed to buy a 53.4 percent stake in USL for about Rs11,166.5 crore as it sought a bigger market share in India. The transaction included the purchase of a 19.3 percent stake from UBHL and fresh preference shares from USL. Diageo, was to buy the remaining 26% from the public shareholders of USL.
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After their open offer got a tepid response in July 2013, it was not able to pick up 53.4 percent stake in USL as it had planned. On November 8, Diageo had announced that it may not be able to fully-acquire the proposed 27.40 percent stake in USL by the deadline of November 11. It could purchase only 25.02 per cent stake in USL since the remaining 2.38 percent shareholding was pledged by the Vijay Mallya company. In November 2013, Relay BV, a wholly--owned subsidiary of Diageo, purchased 19,67,940 USL shares. The shares were acquired at Rs 2,400 apiece, valuing the transaction at Rs 472.31 crore.. Diageo, is currently the largest shareholder in USL with a 26 percent stake, although after the Karnataka high court order, their stake has to come down to a little over 19 percent. But all this is much lower than the 53.4 percent it originally sought..UBHL and other promoter firms own 11.08 percent.
Diageo has made known its strong disagreement with the order of the Karnataka High Court, joining Vijay Mallya who recently has asked for a redressal of certain facts in the judgment.The order passed by a division bench consisting of Justice N Kumar and Justice Rathnakala on December 20 annulled the sale of UB Holdings stake in United Spirits Ltd to Diageo in a transaction worth about Rs 1460 crore for over 10 million shares.
Diageo said it believes that its purchase of United Spirits' shares from UB Holdings is "genuine and bona fide", not withstanding the pronouncements of the Appeal Court and they have now appealed to supreme court against it.
So, if this proposal goes through, Diageo will be a little closer to its plans of acquiring majority stake in USL back again, with this fresh issue of preferential shares bringing its stake back to more than 25 percent, but as for now, they are working around a proposal for the same, considering that it is still in stuck in a legal tangle. It will also be interesting to see at what price does this take place, considering the price of the open offer was around Rs 1440, and the CMP of USL currently is hovering around Rs 2640.
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