Diageo gets Sebi nod for USL open offer

The world’s largest spirits maker, Diageo plc, has received approval from Securities and Exchanges Board of India (Sebi) for its proposed open offer to pick up an additional 26% stake in India’s largest spirits maker United Spirits Ltd (USL).

This is the second open offer made by Diageo to gain a majority control in USL and if successful it will cost around `11,449 crore and take its stake to about 55%.

Diageo’s first open offer to gain control of Vijay Mallya-owned UB Group’s United Spirits failed in 2012 and last month it made another attempt by more than doubling its offer. In its latest offer, it has offered `3,030 for a share, which is a premium of 22.5% to the price at which it acquired USL shares on January 31, 2014. The earlier open offer was at Rs 1,440 a share.

USL shares on the Bombay Stock Exchange closed at `2,795.05 on Monday, up 0.1%.

Market regulator Sebi issued final observations necessary for the offer and the deal as a whole to go through on May 21, according to a notification by USL.

The offer for 3,77,85,214 USL shares is being made through Relay BV, a wholly-owned indirect subsidiary of Diageo. Through Relay, Diageo already has strategic management control of USL, with about 29% stake.

Diageo, which makes Johnnie Walker scotch and Smirnoff Vodka, is betting big on emerging markets to boost revenue and therefore having a majority control of USL by volume will be crucial.

Diageo has said that the open offer will be funded via its cash reserves and debt. The bonds will be issued by Diageo Finance plc, with payment of principal and interest fully guaranteed by Diageo plc.

Analysts have urged shareholders to stay put as they believe USL’s performance on the markets will improve with Diageo under control.