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Diageo close to deal for United Spirits stake
November 8, 2012 / 4:12 PM / in 5 years

Diageo close to deal for United Spirits stake

MUMBAI (Reuters) - Diageo Plc (DGE.L) was close to a deal for a stake in liquor baron Vijay Mallya’s United Spirits Ltd (UNSP.NS) after months of talks, sources with direct knowledge of the matter said, with a deal likely to be announced as soon as Friday.

A child sleeps at a shop selling whisky in Hanoi June 6, 2012. REUTERS/Kham/Files

Diageo and United Spirits, which has a market value of $3.2 billion, were expected to sign a deal term sheet soon, the sources said, declining to be named because they were not authorised to speak to the media.

The two companies said in September that they were in talks about a possible deal.

Diageo is likely to end up with a 51 percent stake in United Spirits through a combination of share purchase from the owners of the Indian company, buying new shares and launching a mandatory open offer to minority shareholders, sources said.

Other terms, including the deal value, were not immediately available and both companies declined to comment.

Diageo, the world’s biggest spirits group and maker of brands including Johnnie Walker whisky, Guinness beer and Smirnoff vodka, has long coveted an expanded presence in India. In 2008 the two sides held talks that collapsed the next year.

A man walks outside the factory of United Breweries Ltd (UB) that manufactures Kingfisher beer in Thiruvalluar district of Tamil Nadu March 30, 2012. REUTERS/Babu/Files

The deal would ramp up Diageo’s presence in the world’s largest whisky market, while Mallya will gain much-needed cash to reduce United’s debt. It could also free up funds to revive his grounded Kingfisher Airlines (KING.NS).

At the end of June United Spirits’ gross debt stood at $1.6 billion.

Force India team principal Vijay Mallya waves in the paddock at the Buddh International Circuit in Greater Noida, on the outskirts of New Delhi, October 27, 2012. REUTERS/Ahmad Masood

Mallya has been scrambling for nearly a year to raise funds for Kingfisher Airlines, prompting speculation that he may offload a stake in United Spirits, India’s dominant spirits maker, or United Breweries (UBBW.NS), the maker of Kingfisher beer.

The airline, which has struggled to pay its staff for most of the year and has not flown for more than a month because of protests and safety concerns, posted a record loss on Thursday but said that a recovery plan was in the works.

Shares in United Spirits have nearly tripled this year, with much of the gains coming in the past four months amid market talk about a possible deal with Diageo. The Mint newspaper said on Tuesday that a deal is likely to be announced this week.

The shares rose 3.4 percent on Thursday, while the benchmark Mumbai market index .BSESN ended down 0.3 percent. (Reporting by Sumeet Chatterjee and Indulal P.M.; Additional reporting by Anjuli Davies in London; Editing by David Goodman)

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