Whisky Focus - Diageo Take 27% Shareholding In United Spirits

Diageo Take 27% Shareholding In United Spirits


9th November 2012
Diageo, UBHL and USL today announced that Diageo will take a shareholding in USL, the leading Indian spirits company.

Diageo plc, United Breweries (Holdings) Limited and United Spirits Limited have today announced agreements under which Diageo would acquire a 27.4% stake in USL, the leading spirits company in India. The consideration will be INR 1440 per share and the total consideration would be INR 57,254 million (approximately £660 million). Following completion of these agreements, Dr Vijay Mallya will continue in his current role as Chairman of USL, and UBHL and Dr Mallya will work with Diageo to build the USL business as the current consumer trends for premiumisation accelerate in India. The agreements are in two parts:

- An agreement to acquire a 19.3% interest in the current share capital of USL at a price of INR 1440 per share from the UBHL group, the USL Benefit Trust, Palmer Investment Group Limited and UB Sports Management (two subsidiaries of USL) and SWEW Benefit Company (a company established for the benefit of certain USL employees). Following this disposal, the UBHL group would continue to have a shareholding in USL amounting to 14.9% of current share capital.

- The shareholders of USL will be asked to approve the preferential allotment to Diageo at a price of INR 1440 per share of new shares amounting to 10% of the post-issue enlarged share capital of USL.

These agreements trigger an obligation on Diageo to launch a Mandatory Tender Offer to the public shareholders of USL. Diageo has therefore also announced that it will launch a tender offer to acquire, at a price of INR 1440 per share, a maximum of 37,785,214 shares, which equates to 26% of the enlarged share capital of USL.

On completion of the share purchases as described above and in the event that the tender offer were fully subscribed, Diageo will hold 53.4% of the enlarged USL share capital at an aggregate cost of INR 111,665 million (approximately £1,285 million). This represents a 20x multiple of USL’s EBITDA for the year ended 31 March 2012 and the transaction would be eps accretive in year 2 and economic profit positive in year 6 assuming a 12 % WACC.

Diageo and Dr Mallya have entered into a memorandum of understanding under which they will form a 50:50 joint venture which will own United National Breweries’ traditional sorghum beer business in South Africa. Diageo’s investment for its 50% interest in the joint venture is expected to be approximately USD 36 million (approximately £25 million), subject to adjustment. Diageo and Dr Mallya are also considering the possibility of extending this joint venture in order to maximise opportunities which exist in certain emerging markets in Africa and Asia (excluding India).

Paul S Walsh, Chief Executive of Diageo, said:

‘I am delighted at the opportunity Diageo has to be part of India’s large and growing local spirits market. As a result of the agreements we are announcing today we will be well positioned to take the growth opportunities presented by a spirits market where growth is driven by the increasing number of middle class consumers. USL’s number 1 position in local spirits together with our growing international spirits business of leading brands will enable us to grow across the consumer space as India’s increasing number of middle class consumers look to enjoy premium and prestige local spirits brands as income levels rise. The combination of USL’s strong business with the capabilities which Diageo brings as the world’s leading premium drinks company will ensure that USL continues to lead the industry in India.

Vijay Mallya’s experience in building USL to the leadership position it has is unique in our industry and in his position, as Chairman of USL, I look forward to working with him to deliver value for the shareholders of both USL and Diageo.
The acquisition of our shareholding in USL is fully aligned with our strategy to build our presence in the world’s faster growing markets and enhances our position as the world’s leading premium drinks company.’

Dr Vijay Mallya, Chairman of the UB Group, said;

'I am very proud of USL and what has been created over the last 30 years to bring this company to its pre-eminent position in India. I have had a long association with Diageo and therefore I am confident that this winning partnership with Diageo provides USL with the best possible platform for future growth. I am delighted to remain part of that journey as Chairman of USL as we work together to build continued value for the shareholders of USL and UBHL.'
 

Facts About United Spirits Limited


United Spirits Limited is the leading spirits company in India:
  • United Spirits Limited (USL) is the leading spirits company in India, with net sales of Rs. 91,865 million (£1,057 million)1.
     
  • USL posseses an unparalleled brand portfolio in India with strong customer recognition and breadth of brands across categories and price points. It also has a strong distribution network and point of sale coverage, with sales offices in key Indian state capitals and established manufacturing and bottling plants in all major Indian states.
     
  • The company is growing at a robust rate. According to the Impact Databank ‘Top 100’ volume ranking, USL brands grew volumes 7% in 2011 – 2012, while the average for all spirit brands listed was just 2.9%.
     
  • The higher end of its portfolio is growing the fastest, with prestige and above segments up 15%, scotch up 23% and premium whiskies up 22%.

The Indian Market:

  • India has a significant growing middle class (120 million people), expected to reach 600 million by 2025. The affluent and emerging middle class will account for more than 80% of national consumption by 2025.
     
  • The economy is also delivering significant growth with forecasts of 6-8% GDP growth year-on-year.
     
  • India has a large and growing local spirits market gaining 4.3 million new consumers every year. The higher price tiers are growing the fastest with volumes of premium whisky up 21%, super premium whisky up 22% and premium scotch up 27%2.
     
  • The Indian Total Beverage Alcohol (TBA) market is worth $6.1 billion NSV and is forecast to grow at 15% CAGR in value over the next 5 years.
     
  • Expected growth in spirits will be led by scotch and premium Indian Made Foreign Liqueur (IMFL).

 

United Spirits Key Brands


Whisky:
  • McDowell No. 1 family is the largest spirits brand in the world with sales over 44 million 9-litre cases in FY 2012 in 3 variants (whisky, brandy and rum).
     
  • Signature (# 2 fastest growing premium whisky in India).
     
  • Royal Challenge (# 3 fastest growing premium whisky in India).
     
  • Antiquity (# 4 fastest growing premium whisky in India).
     
  • Bagpiper (# 1 fastest growing regular whisky in India)
     
  • Director’s Special Whisky.

Scotch Whisky:

  • Black Dog (12 year old is the # 1 fastest growing premium Scotch and 8 year old is the fastest growing regular Scotch in India).
     
  • Whyte & Mackay.
     
  • Jura.
     
  • Dalmore.

Vodka:

  • Vladivar.
     
  • Romanov.
     
  • White Mischief.

 

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