Diageo announces United Spirits share purchase agreement

Diageo has announced that it has completed the acquisition of a further 14.98% stake in United Spirits Limited (USL), the leading spirits company in India.

Diageo is now the major shareholder in USL, with a shareholding of 25.02%.

The consideration was INR1440 per share and the total consideration of INR 31,345,558,560 (£344,190,791) has been settled.

On May 27 Diageo subscribed for a preferential allotment of new shares in USL amounting to 10% of the post-issue enlarged share capital at a total consideration of INR20,927,196,000 (£249,255,052).

Separately, Diageo acquired 58,668 additional USL shares in the tender offer for a total consideration of INR85,778,082 (£983,789). Diageo therefore now holds 36,359,192 shares representing 25.02% of the enlarged USL share capital at an aggregate cost of INR52,358,532,642 (approximately £594,429,632). This represents a 18x multiple of USL’s EBITDA for the year ended March 31, 2013 and the transaction is expected to be eps accretive in year 2 and economic profit positive in year 5 assuming a 12% WACC.

With completion of the share purchase agreement, the shareholders’ agreement between Diageo, United Breweries (Holdings) Limited and KFinvest is now effective, says Diageo.

Diageo’s 25.02% shareholding in USL, together with the voting and other governance arrangements agreed with the UBHL group, including Dr Mallya’s continued role as USL chairman, will give Diageo control and enable Diageo to fully reflect the results of USL in its consolidated accounts, which it expects to do from January 1, 2014. Prior to this, Diageo will equity account its shareholding in USL.

Diageo chief executive Ivan Menezes, said: “USL’s strong market-leading position combined with Diageo’s strength and capabilities opens an exciting and important new chapter for Diageo in the attractive Indian spirits market. Since we received approval for this transaction we have been getting ready for closing and integration. Having completed the share purchase, we will now begin the work to identify and capture the significant growth opportunities within this attractive market."

“Through this acquisition we have transformed Diageo’s position in India, a market which is one of the biggest growth opportunities in our industry. India will become one of Diageo’s largest markets and with its increasing number of middle class consumers looking for premium and prestige local spirits brands as income levels rise it will also become a major contributor to our growth ambitions,” sais Menezes.

UB Group chairman Dr Vijay Mallya, said: “I am very pleased that we have completed our share purchase agreement today. USL has entered into the next stage on its journey and I look forward to remaining part of that journey in my role as chairman of USL.”