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Diageo PLC DGE Diageo will take a shareholding in USL

  Diageo PLC (DGE) - Diageo will take a shareholding in USL

RNS Number : 7571Q
Diageo PLC
09 November 2012




Thursday 9 November 2012

 Diageo, UBHL and USL today announce that Diageo will take a shareholding in
                   USL, the leading Indian spirits company

Diageo will now launch a Mandatory Tender Offer to the public shareholders of
                                     USL

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.'

The key points of the agreements between Diageo, UBHL and USL are:

· Completion of the  acquisition of shares 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) is subject to a number of conditions.  These 
conditions include the release of all  security interests over the USL  shares 
to be  acquired  by  Diageo.  They  also  include  the  receipt  of  mandatory 
regulatory approvals (including competition approvals) in India and elsewhere.

· Diageo has reached agreement with  USL under which the shareholders  of 
USL will  be  asked  to  approve  (by  special  resolution)  the  preferential 
allotment of new shares to Diageo, at a price of INR 1440 per share. The price
is subject to  applicable pricing  rules under Indian  regulations. These  new 
shares will amount to 10% of USL's post-allotment enlarged share capital. UBHL
will vote in favour of the  resolution. The preferential allotment is  subject 
to certain conditions  including USL shareholder  approval and if  successful, 
combined with the above acquisition of  shares, would result in Diageo  owning 
27.4% of the enlarged share capital of USL.

· The preferential allotment and the  acquisition of shares from the  USL 
subsidiaries will enhance USL's financial  strength, including a reduction  in 
USL's net debt.

· Total consideration for the aggregate shareholding, representing  27.4% 
of the enlarged USL share capital,  acquired through the arrangements for  the 
acquisition and the preferential allotment described above would therefore  be 
INR 57,254 million (approximately £660 million).

· The  combination of  the acquisition  and the  preferential  allotment 
trigger an  obligation on  Diageo to  launch a  mandatory tender  offer for  a 
minimum of 26% of the issued share capital of USL. Diageo will launch a tender
offer to acquire a maximum additional interest  in USL of no more than 26%  of 
the enlarged USL share  capital. The tender  offer will be at  a price of  INR 
1440 per share, representing  a premium of  over 35% to  the closing price  of 
USL's  shares  on  24  September  2012,  the  last  business  day  before  the 
announcement that Diageo, UBHL and USL were in discussions regarding  possible 
transactions. At that price, the  total consideration under the tender  offer 
(assuming full  take-up)  would  be INR  54,411  million  (approximately  £625 
million).

· Following the formal documentation  review process of SEBI, the  Indian 
takeover regulator, Diageo  will post  the tender offer  documentation to  USL 
shareholders. Completion of the  acquisition and tender  offer is expected  to 
occur in the first quarter of 2013.

· Diageo will fund  the acquisition through  existing cash resources  and 
debt. Diageo believes that its financial strength supports its current  single 
A credit  rating and  will hold  discussions  with the  rating agencies  as  a 
consequence of this announcement.

· In  certain  circumstances  where the  preferential  allotment  is  not 
successful (including where it  is not approved by  the shareholders of  USL), 
UBHL has agreed to sell additional shares in  USL to Diageo at a price of  INR 
1440 per share to ensure that Diageo has a minimum shareholding of 25.1%.

·  In  addition,  if  the  share  purchase  agreement,  the  preferential 
allotment and the  tender offer  do not result  in Diageo  holding a  majority 
interest in USL, UBHL has agreed to vote its remaining shareholding in USL  as 
directed by Diageo for a four year period. UBHL will also vote its USL  shares 
to enable Diageo to ensure that its nominees are appointed to the USL board.

· In the event  that Diageo does  not acquire a  majority interest it  is 
likely that  a  minimum  shareholding  of  25.1%,  together  with  the  voting 
arrangements and other governance arrangements agreed with the UBHL group  and 
its relationship with  Dr Mallya as  Chairman of USL,  would enable Diageo  to 
reflect the results of USL in its consolidated accounts.

·  The  tender  offer  will  be  governed  by  the  applicable   takeover 
regulations of India and is subject to certain conditions.

JM Financial acted as lead transaction and financial adviser to Diageo on  the 
transaction; BofA Merrill  Lynch acted  asjoint financial  adviser; UBS  also 
provided financial advice to Diageo.

Slaughter and May and  Platinum Partners acted as  legal advisers to  Diageo. 
Deloitte LLP provided Financial and Tax due diligence services.

For UBHL & USL:
Citigroup Global Markets acted as lead financial adviser; Ambit Corporate
Finance advised UBHL on tax and structure-related issues.
Amarchand and Mangaldas & Suresh A. Shroff & Co. acted as lead legal adviser.
Legal adviser on matters of English Law - Herbert Smith Freehills LLP;
Legal adviser for legal due diligence process - Kanga & Co.

Important information

The important information set out below comprises information regarding:

· United Spirits Limited ("USL")

· The acquisition  by Diageo, through  its wholly-owned subsidiary  Relay 
B.V., of  USL shares  from  United Breweries  (Holdings) Ltd  ("UBHL")  and/or 
members of its group, the USL  Benefit Trust, Palmer Investment Group  Limited 
and UB Sports Management Overseas Limited (two subsidiaries of USL), and  SWEW 
Benefit Company (the "Acquisition")

· The proposed preferential allotment of new shares in USL to Relay  B.V. 
(the "Preferential Allotment")

· The mandatory tender offer to  public shareholders of USL (the  "Tender 
Offer", and together with the  Acquisition and the Preferential Allotment  the 
"USL Transaction")

· Joint venture arrangements

· Conditions of the USL Transaction

· Other important information and certain potential transaction risks

· Next steps

USL

USL is the leading spirits producer in India. In the financial year ended  31 
March 2012, the company had net sales of INR 91,865 million (£1,057  million), 
EBITDA of INR  13,092 million (£150.6  million) and profits  after tax of  INR 
1,872 million (£21.5 million). As at 31  March 2012, USL had gross assets  of 
INR 158,565 million (£1,824.5 million).

Acquisition

Under a share  purchase agreement  (the "Share  Purchase Agreement")  executed 
today, Diageo  (through  its  wholly-owned  subsidiary,  Relay  B.V.  ("Diageo 
Bidco")) has  agreed,  subject  to the  satisfaction  (or,  where  applicable, 
waiver) of certain conditions,  to acquire, at a  price of INR1440 per  share 
(representing aggregate consideration of INR 36,327 million (£418.0 million)),
25.23 million shares in USL, representing  19.29% of the current issued  share 
capital of USL, from UBHL and/or members of its group, the USL Benefit  Trust, 
Palmer Investment Group Limited and UB Sports Management Overseas Limited (two
subsidiaries of USL),  and SWEW  Benefit Company  (a company  controlled by  a 
committee appointed by  Dr Vijay  Mallya and  whose principal  purpose is  the 
benefit of specified USL employees).

In addition, UBHL has agreed,  again conditionally, to sell additional  shares 
to Diageo Bidco (the "Additional Shares Obligation") in certain  circumstances 
where the Preferential Allotment does not complete and Diageo Bidco holds less
than 25.1% of USL after taking account of USL shares acquired under the Tender
Offer, under the Share Purchase Agreement  or in any other manner. Where  the 
Additional Shares Obligation  applies, UBHL  would sell to  Diageo Bidco  such 
number of shares as would take Diageo Bidco to a holding of 25.1% in USL.

Following completion of the Share Purchase Agreement (and assuming  completion 
of the Preferential Allotment and, therefore, no application of the Additional
Shares Obligation), UBHL and members of its group would continue to hold 13.4%
of USL.

The  Share  Purchase  Agreement   contains  certain  warranty  and   indemnity 
protection in favour of Diageo  and Diageo Bidco in  respect of the USL  group 
and on certain matters relating to  the UBHL group. UBHL has also  undertaken 
to exercise its shareholder rights and otherwise use reasonable endeavours  to 
cause USL  to carry  on its  business in  the normal  course (other  than  for 
certain  agreed  exceptions)  prior  to  completion  of  the  Share   Purchase 
Agreement.

Diageo, Diageo Bidco, UBHL and Kingfisher Finvest India Limited (a  subsidiary 
of UBHL) have also entered into  an agreement governing their relationship  as 
shareholders in  USL  (the "Shareholders'  Agreement")  which will  come  into 
effect in the event of and  upon completion of the Share Purchase  Agreement. 
The principal provisions of the Shareholders' Agreement are as follows:

· The parties will use their respective rights as shareholders such that:

(i)  Diageo will  be able to nominate,  propose or recommend directors  to 
the USL board and appoint its nominees to the roles of CEO and CFO;

(ii)  UBHL will  be able to  nominate one director (who  would be Dr  Vijay 
Mallya) and recommend a second non-executive director who will, to the  extent 
feasible, be an independent director, to the USL board. The right to recommend
the second director falls away if the UBHL group no longer holds 5% or more of
USL's current share  capital, and  both appointment  rights fall  away if  its 
holding falls below 1% of USL's  current share capital. These rights of  UBHL 
are also  subject to  Dr Mallya  continuing to  control UBHL,  and in  certain 
circumstances where Dr Mallya ceases to  control UBHL he would succeed to  the 
right to nominate himself as a director of USL subject to his holding at least
1% of USL's current share capital;

(iii)  the balance of the USL board will comprise independent  non-executive 
directors in such  number as is  required by law.  Indian law and  regulation 
requires, where  the chairman  is not  independent  (as will  be the  case  in 
relation to  Dr Mallya),  that at  least  half of  the board  should  comprise 
independent non-executive directors; and

(iv)  certain veto  and consultation arrangements agreed  with UBHL and  Dr 
Mallya will apply as part of their continued involvement in USL.

· Diageo will support Dr Mallya continuing as non-executive director  and 
chairman of USL subject to the UBHL  group or Dr Mallya continuing to hold  at 
least 1% of USL's current share capital and certain other conditions. In  the 
event that  Dr Mallya  ceases to  be non-executive  director and  chairman  by 
reason of resignation  or because  the qualifying test  is no  longer met,  he 
would, subject to  certain conditions,  be appointed as  chairman emeritus  of 
USL, a non-board role.

· In the event that, following the USL Transaction, Diageo Bidco does not
hold a majority of the ordinary shares in USL, members of the UBHL group which
hold USL shares will, subject to specific and limited agreed exceptions,  vote 
their shares at  Diageo's direction.  This voting  obligation will  terminate 
upon the Diageo group reaching a majority position or otherwise at the end  of 
the fourth full financial  year of Diageo  after the date  on which the  Share 
Purchase Agreement completes.

· UBHL has agreed that members of  its group shall be subject to  certain 
restrictions regarding  future acquisitions  and disposals  of shares  in  USL 
(including the granting of security). The Shareholders' Agreement allows  the 
transfer of shares to a class  of permitted transferees, and such  transferees 
will generally have the benefit of the Shareholders' Agreement and hold  their 
USL shares subject to it. In addition, if a member of the UBHL group proposes
to transfer any USL shares other than to a permitted transferee, it must first
offer them to  Diageo Bidco  at the  price at which  it proposes  to sell  the 
shares. To the extent that Diageo Bidco does not take up its right to acquire
the shares at that offered price, the relevant member of the UBHL Group  would 
be free, subject to certain limitations, to  sell its shares to a third  party 
at or above the offered price.

· Diageo Bidco has granted UBHL the  right to put its remaining stake  in 
USL on Diageo Bidco at a price of INR 1440 per share (being the same price per
share as under the  Share Purchase Agreement), except  that Diageo Bidco  will 
not be required to  acquire further USL  shares under this  put option to  the 
extent that such acquisition  would trigger an obligation  on Diageo Bidco  to 
make a  further  tender  offer for  shares  in  USL. UBHL's  put  right  will 
terminate on  the seventh  anniversary  of the  earlier  of the  Diageo  group 
achieving a  50.1%  holding in  USL  and  Diageo first  consolidating  a  full 
financial year's results for USL in its annual financial statements.

· In the event that Diageo proposes to make certain material disposals of
USL shares, it has agreed that UBHL shall, in certain circumstances, also have
the right to sell its shares as part of any such transaction.

· UBHL and its affiliates have agreed certain undertakings not to compete
with USL while the Shareholders' Agreement remains in force and for two  years 
following its termination.

Please refer to the  "Conditions of the USL  Transaction" section below for  a 
summary of some  key conditions to  which the Acquisition  is subject and  for 
details of certain  circumstances in  which the  Additional Shares  Obligation 
will not apply.

Preferential Allotment

Diageo and  Diageo  Bidco  have  entered  into  an  agreement  with  USL  (the 
"Preferential Allotment Agreement") under which  the shareholders of USL  will 
be asked  to approve  (by special  resolution) the  preferential allotment  to 
Diageo of 14.53 million new shares in USL  at a price of INR 1440 per  share. 
This price is subject  to change in accordance  with applicable pricing  rules 
for preferential allotments under Indian law and regulation. These new shares
will amount to 10%  of USL's enlarged share  capital. UBHL has undertaken  to 
vote its USL shares in favour of the special resolution.

The Preferential Allotment Agreement  contains certain warranty and  indemnity 
protection in favour of Diageo Bidco. USL has also undertaken to carry on its
business  in  the  normal  course  until  the  later  of  completion  of   the 
Preferential Allotment and completion of  the Share Purchase Agreement  (other 
than for certain agreed exceptions).

The proceeds of  the Preferential Allotment  will be used  for the purpose  of 
repaying existing USL group indebtedness and for use in the ordinary course of
business, including for the purpose of working capital or capital expenditure.

Please refer to the  "Conditions of the USL  Transaction" section below for  a 
summary of the conditions to which the Preferential Allotment is subject.

Tender Offer

Simultaneously with this release, Diageo (through its wholly-owned subsidiary,
Diageo Bidco) has announced its intention  to launch a mandatory tender  offer 
to the public shareholders  of USL to  acquire up to  an additional 28.89%  of 
USL's existing share capital. This  represents 26.00% of USL's share  capital 
as it would be enlarged by the Preferential Allotment. The Tender Offer  will 
be governed  by  the  Securities  and Exchange  Board  of  India  (Substantial 
Acquisition of Shares and Takeovers) Regulations 2011 (the "Regulations")  and 
applicable law. The  applicable Indian takeover  regulator is the  Securities 
and Exchange Board of India ("SEBI").

The Tender Offer will be  made in accordance with  the Regulations and on  the 
terms and conditions set out  in the public announcement  to be made today  in 
India and the detailed  public statement and  letter of offer  that are to  be 
released by Diageo and Diageo Bidco in India. 

The Tender Offer has been announced at the following price:

for each USL Share INR 1440 in cash

At that price, and assuming full take-up of the offer by USL shareholders, the
total  aggregate  consideration  payable  under  the  Tender  Offer  would  be 
approximately INR  54,411  million  (£626.1  million).  This  values  USL  at 
approximately INR 209,272  million (£2,407.9 million)  on a  post-Preferential 
Allotment basis.

The offer price announced today represents a premium of over 35% to the  price 
of a  USL share  on 24  September 2012,  the last  business day  prior to  the 
announcement that Diageo, UBHL and USL were in discussions regarding  possible 
transactions.

If the Tender Offer is over-subscribed, the accepting USL shareholders will be
scaled back and entitled  to sell such  number of shares  calculated on a  pro 
rata basis to the shares tendered in the Tender Offer.

Indicative Abridged Tender Offer Timetable (see note)

Public announcement                              9 November 2012
Expected  publication  of  the  detailed  public By 20 November 2012
statement
Expected dispatch of the letter of offer         On or around 31 December 2012
Commencement of tendering period                 On or around 7 January 2013
Expiry of tendering period                       On or around 18 January 2013
Settlement of  consideration for  accepting  USL On or around 1 February 2013
shareholders

Note: The times and dates set out in the indicative abridged timetable  above 
and mentioned throughout this announcement may be subject to adjustment, being
dependent on the timing of the completion  of the review process of the  draft 
letter of offer by SEBI, regulatory approval in India and elsewhere, and other
permitted conditions to the Tender Offer. Details of any such adjustment  and 
the new times and dates will be notified to USL shareholders by publication in
relevant newspapers and will  be announced on  relevant stock exchanges.  The 
times and dates are  subject to the satisfaction  or waiver of all  applicable 
conditions to the Tender Offer and completion of the SEBI review process.

Please refer to the  "Conditions of the USL  Transaction" section below for  a 
summary of the conditions to which the Tender Offer is subject.

Further important  information  relating  to the  Tender  Offer,  and  certain 
implications of the  SEBI review  process required  to confirm  the terms  and 
conditions (including price) of  the Tender Offer, are  set out in the  "Other 
Important Information and Certain Potential Transaction Risks" section below.

As required by the Regulations,  Diageo (through its wholly-owned  subsidiary, 
Diageo  Bidco)  has  also  announced  its  intention,  subject  to  successful 
completion of the  Tender Offer,  to launch a  mandatory tender  offer to  the 
public shareholders of Pioneer Distilleries Limited ("Pioneer") (a  subsidiary 
of USL)  to acquire  up to  18.42% of  Pioneer's outstanding  share  capital. 
Pioneer shareholders would  be entitled  to receive  INR 60  for each  Pioneer 
share. This values Pioneer at approximately INR 803 million (£9.2  million). 
Further details will be announced  following completion of the Tender  Offer. 
At that price, and assuming full take-up of the offer by Pioneer shareholders,
the maximum aggregate consideration payable  would be approximately INR  148.0 
million (£1.7 million). As the shares  of Pioneer are infrequently traded  on 
the Indian stock exchanges,  this price is based  on an independent  valuation 
and not the market  price. The market  price of a Pioneer  share on the  last 
business day prior to this announcement was INR38.25.

Joint Venture Arrangements

Diageo and Dr Vijay Mallya have entered into a memorandum of understanding to
establish a joint venture to own United National Breweries' traditional
sorghum beer business in South Africa.

Under the memorandum of understanding, which is non-binding and subject to
definitive documentation:

· Diageo would acquire a 50% interest for an expected cash consideration
of approximately USD 36 million (£23 million), subject to adjustment. The
other 50% would be held by a company affiliated to Dr Mallya.

· Diageo and the Dr Mallya affiliated company would have equal
shareholder votes in the joint venture company and equal representation on its
board. Dr Mallya would be chairman of the joint venture company but would
have no casting vote.

Implementation of  the South  African joint  venture would  be conditional  on 
certain consents, including from the  South African competition authority  and 
other relevant regulatory authorities.

Diageo and Dr Mallya are also  considering the possibility of extending  their 
joint venture  relationship by  establishing  a joint  venture in  respect  of 
certain emerging markets  in Africa and  Asia (excluding India)  on terms  and 
with a scope as yet to be determined.  It is not certain whether such a  joint 
venture will  be established  or, if  so,  on what  basis. If  this  emerging 
markets joint venture is  established, it is expected  that the South  African 
joint venture would be contributed to it.

Conditions of the USL Transaction

This section sets out the principal conditions to which the USL Transaction is
subject.

Acquisition

The acquisition under the Share Purchase Agreement is subject to  satisfaction 
(or, in  certain cases,  waiver) of  a number  of conditions,  including:  (i) 
completion of the Tender Offer in accordance with its terms, (ii) the  absence 
of insolvency-related events and proceedings in  respect of the USL group  and 
the sellers, (iii) consents or waivers from certain lenders to the USL  group, 
(iv) the release of any and all  encumbrances over the business and assets  of 
the USL group relating to the indebtedness or liabilities of the UBHL group or
any persons  connected  with  it,  (v)  no member  of  the  USL  group  having 
responsibility for  debts or  liabilities of  the UBHL  group or  any  persons 
connected with it, (vi) the release of all security and encumbrances over  the 
USL shares that are being sold under the agreement, (vii) competition approval
or clearance in India and elsewhere, (viii) certain other regulatory and third
party consents, and (ix) there being  no breach of certain key warranties  and 
there being no breach of other warranties  that would give rise to a  material 
adverse effect.

The long-stop date for  satisfaction (or, where  applicable, waiver) of  these 
conditions is 9 November 2013, or such later date as may be agreed.

Preferential Allotment

The Preferential Allotment is conditional on the satisfaction (or, in  certain 
cases, waiver) of a number of  conditions, including: (i) the approval by  USL 
shareholders of a special resolution,  (ii) competition approval or  clearance 
in India and elsewhere, (iii) various regulatory and stock exchange approvals,
(iv) consents  or waivers  from various  lenders  to the  USL group,  (v)  the 
absence of certain  insolvency events and  proceedings in respect  of the  USL 
group, and (vi)  there being  no breach of  certain key  warranties and  there 
being no breach of certain other warranties that would give rise to a material
adverse effect. In addition,  the agreement is conditional  upon (a) the  per 
share subscription price for the preferential allotment being not greater than
the price of INR 1440 announced today, (b) the Tender Offer price of INR  1440 
price announced today not being subject  to increase under applicable law  and 
regulations, and (c) certain of the conditions to the Share Purchase Agreement
being satisfied and  the Share  Purchase Agreement  not being  subject to  any 
restraining order or judgment or any legal or regulatory impediment.

In certain  circumstances where  the Preferential  Allotment does  not  become 
unconditional on account  of non-satisfaction (and  non-waiver) of those  last 
three conditions, or on account of  certain other matters that are  reasonably 
within Diageo's control or for which it is responsible, the Additional  Shares 
Obligation described above will not apply under the Share Purchase Agreement.

The long-stop  date for  satisfaction (or,  where applicable,  waiver) of  the 
conditions under the Preferential  Allotment Agreement is  9 November 2013  or 
such later  date  as  may be  agreed  or  as may  otherwise  apply  under  the 
Preferential Allotment Agreement.

Tender Offer

The Tender Offer is subject to  a number of closing conditions, including  (i) 
the receipt of competition approvals in India and elsewhere, (ii) arrangements
for the release of security interests over the USL shares to be sold to Diageo
Bidco under the  Share Purchase Agreement,  (iii) the release  of any and  all 
encumbrances over the  business and assets  of the USL  group relating to  the 
indebtedness or liabilities of  the UBHL group or  any persons connected  with 
it, and (iv) no  member of the  USL group having  responsibility for debts  or 
liabilities of the UBHL group or any persons connected with it.

The full conditions of the Tender Offer will be set out in the relevant formal
documentation for that offer.

Other Important Information and Certain Potential Transaction Risks

This section sets out  some additional important  information relating to  the 
Tender Offer and its  process as well as  certain potential risks relating  to 
the USL Transaction.

The Tender Offer will  be made in compliance  with the Regulations which  came 
into effect  in  October  2011. The  Regulations  substantially  changed  the 
regulatory environment applicable to tender offers in India.

The terms, conditions, timetable and  public documentation in relation to  the 
Tender Offer are subject to review and observations issued by SEBI. SEBI  may 
require changes  to  be  made  to the  terms  (including  price),  conditions, 
timetable and public documentation in relation to the Tender Offer and  Diageo 
Bidco would  be obliged  to implement  such  changes (subject  to a  right  of 
appeal).

There is limited precedent as to how these rules might be interpreted and  the 
nature of the observations  and directions that SEBI  might issue pursuant  to 
the Regulations, both generally and specifically  in relation to the terms  of 
the Tender Offer and the USL Transaction.

Having carefully considered the Regulations  and their application to the  USL 
Transaction, the Tender Offer and the  various other matters outlined in  this 
announcement, Diageo believes  that the terms  and offer price  of the  Tender 
Offer  announced  today  are  the  terms  and  offer  price  that,  under  the 
Regulations, should apply  in respect  of the  Tender Offer.  However, it  is 
possible that SEBI may require the terms and conditions of the Tender Offer to
be modified or the Tender Offer price to be increased, and it is possible that
any such modifications to the terms or conditions of the Tender Offer could be
material or that  the aggregate cost  to Diageo  of any such  increase in  the 
Tender Offer price could be substantial in the context of the aggregate  value 
of the  USL Transaction.  Prior to  commencement of  the formal  SEBI  review 
process and dispatch of the  letter of offer for the  Tender Offer, it is  not 
possible to assess more definitively the  likelihood, effect or amount of  any 
such potential modifications or increase that SEBI might require.

In addition to the uncertainties relating to the terms and price of the Tender
Offer described above, it is not possible to state definitively the  timeframe 
within which the Tender  Offer would be implemented  nor the timeframe  within 
which  the  final  letter  of  offer,  offer  terms  and/or  price  would   be 
definitively determined, as: (i) the statutory timing requirements in relation
to SEBI's formal review process and  receipt of other regulatory approvals  is 
not absolute and can be extended; and  (ii) if SEBI's decision or that of  any 
other  regulator  were  to  be  challenged,  additional  processes,  including 
litigation, could  ultimately be  required to  resolve the  position and  this 
could involve  a  substantial period  of  time  (in the  case  of  litigation, 
potentially a number of  years). During the period  of any such delay  Diageo 
would have  no  control  over  the  operation  of  USL's  business,  and  upon 
definitive resolution Diageo Bidco would likely remain obliged to implement or
complete the Tender Offer  on the terms  and at the  offer price confirmed  or 
determined  as  part  of  that  resolution,  together  with,  potentially,  an 
additional amount in respect  of interest on the  applicable offer price at  a 
rate to be determined by SEBI (in recent transactions an interest rate of  10% 
per annum has been applied). In the event of any such delay, there can be  no 
assurance that  USL  or its  business  would remain  in  the same  or  similar 
condition, compared to its current condition, at the end of any such  process, 
or that the conditions under the  Share Purchase Agreement would be or  remain 
satisfied.

As noted above, completion of  the Acquisition and the Preferential  Allotment 
are each subject to a number of conditions. Such conditions must generally be
satisfied or, where permitted,  waived on or before  9 November 2013,  failing 
which the Acquisition and/or the Preferential Allotment will (absent extension
by mutual  agreement  or  under  the  terms  of  the  relevant  agreement)  be 
terminated. Regardless of the outcome of the Acquisition and the Preferential
Allotment, Diageo Bidco may nonetheless be obliged to proceed with the  Tender 
Offer unless  SEBI  permits  Diageo  Bidco  to  withdraw  the  Tender  Offer. 
Accordingly it is possible that only the Tender Offer, and not the Acquisition
and/or the Preferential Allotment, will  complete, in which case Diageo  Bidco 
would acquire  a  lower than  anticipated  level  of interest  in  USL,  with, 
potentially, UBHL continuing  at its  present ownership level.  In the  event 
that the Acquisition completes  and Diageo Bidco does  not hold a majority  of 
the ordinary shares  in USL, UBHL  has agreed in  the Shareholders'  Agreement 
that members of the UBHL group which hold USL shares will, subject to  limited 
agreed exceptions,  vote  their shares  at  Diageo's direction.  This  voting 
obligation will  terminate upon  the  Diageo group  reaching such  a  majority 
position or otherwise at the end of  the fourth full financial year of  Diageo 
after the date on which the Share Purchase Agreement completes.

The completion  of  the  USL  Transaction  will  require  clearance  from  the 
Competition Commission  of  India  (the  "CCI").  The  regime  governing  such 
clearances has only been in force from 1 June 2011 and, accordingly, there  is 
limited precedent as to how these regulations might be applied and how the CCI
might utilise  the powers  available to  it pursuant  to such  regulations  in 
relation to the USL Transaction.

Following completion  of  the  USL Transaction,  Diageo  expects  to  commence 
implementation within the  USL group  of Diageo's  operational and  governance 
standards as part of the USL  group joining Diageo's international group.  As 
the principal  operations  of the  USL  group are  located  in India  and  are 
geographically and  operationally devolved  within  that jurisdiction,  it  is 
possible  that  achieving  Diageo's  proposed  implementation  could   involve 
commitment of greater management time, cost and resources than expected,  with 
potential implications  for  the day-to-day  operations  of the  USL  business 
units.

Next steps

Diageo intends to commence the  formal SEBI review process promptly  following 
this  announcement  and,  assuming  that  that  process  completes  within   a 
reasonable timeframe, would expect to  post the Tender Offer documentation  to 
USL shareholders during  the fourth quarter  of 2012, with  completion of  the 
Tender Offer then being likely to follow (subject to satisfaction or waiver of
applicable conditions and the absence of intervening circumstances) during the
first quarter of 2013.

Subject to the satisfaction or waiver of the conditions described above and to
definitive completion of the SEBI review  process, it is expected on the  same 
basis that the Acquisition  will complete during the  first quarter of  2013. 
The Preferential  Allotment is  expected to  be implemented  during the  first 
quarter of 2013.

Further announcements will be made in due course as appropriate.

This announcement is not intended to and  does not constitute or form part  of 
any offer to sell or subscribe for or any invitation to purchase or  subscribe 
for any securities in any jurisdiction. The Tender Offer will be made  solely 
pursuant to the  terms of the  letter of  offer, which will  contain the  full 
terms and  conditions  of the  Tender  Offer.  Any decision  or  response  in 
relation to  the  Tender  Offer should  be  made  only on  the  basis  of  the 
information contained in the letter of offer.

The release,  publication  or distribution  of  this announcement  in  certain 
jurisdictions may  be restricted  by law  and therefore  any persons  who  are 
subject to the laws of any  jurisdiction other than the United Kingdom  should 
observe any applicable requirements. This announcement has been prepared  for 
the purpose  of  complying  with  the  laws of  the  United  Kingdom  and  the 
information disclosed  may not  be the  same  as that  which would  have  been 
disclosed if this announcement had been  prepared in accordance with the  laws 
of jurisdictions outside the United Kingdom.

Copies of  this announcement  and  any formal  documentation relating  to  the 
Tender Offer are not being, and must not be, directly or indirectly, mailed or
otherwise forwarded, distributed or sent in  or into or from any  jurisdiction 
where local laws or regulations may result  in a risk of civil, regulatory  or 
criminal exposure if information concerning the  Tender Offer is sent or  made 
available  to   USL  shareholders   in   that  jurisdiction   (a   "Restricted 
Jurisdiction").  Persons  receiving  such  documents  (including  custodians, 
nominees and trustees) must not mail or otherwise forward, distribute or  send 
it in or into or from any Restricted Jurisdiction. Unless otherwise permitted
by applicable law and regulation, the Tender Offer may not be made directly or
indirectly, in or into, or by the use of mails or any means or instrumentality
(including,  but  not  limited  to,  facsimile,  e-mail  or  other  electronic 
transmission, telex or telephone) of interstate or foreign commerce of, or  of 
any facility  of  a  national,  state or  other  securities  exchange  of  any 
Restricted Jurisdiction and the Tender Offer may not be capable of  acceptance 
by any such use, means, instrumentality or facilities.



                                     ENDS

For further information:



Media relations

Rowan Pearman +44 (0)20 8978 4751

Lisa Crane  +44 (0)20 8978 4771

press.office@diageo.com



Investor relations

Catherine James +44 (0)7803 854550

Angela Ryker Gallagher +44 (0)7803 855003

Sarah Paul +44 (0)7803 856876

investor.relations@diageo.com



Analyst materials and conference call:

Presentation slides will be made  available to download from  www.diageo.com. 
At 12.00 (UK time) Paul Walsh, CEO, Deirdre Mahlan, CFO and Ivan Menezes,  COO 
will be available to take your questions regarding today's announcement.

If you would like to  ask a question during the  live Q&A session, please  use 
the following dial-in numbers:

Live Dial-In

UK and International Toll - +44 (0)20 3140 0668

UK Toll Free - 0800 368 1950

USA Toll - +1 631 510 7490

USA Toll Free - +1 866 928 6049

Germany Toll - +49 (0)30 221 510 066

Singapore Toll - +65 315 80328

Confirmation code: 260648#

A  transcript  of  the  Q&A  session   will  be  available  for  download   at 
www.diageo.com on 12 November.



Conference Call Replay

UK and International Toll - +44 (0)20 3140 0698

UK Toll Free - 0800 368 1890

USA Toll - +1 877 846 3918

Germany Toll - +49 (0)6922 222 9033

Singapore Toll - +65 630 77656

Confirmation code: 388068#



Cautionary Note Regarding Forward-Looking Statements

This announcement contains certain forward-looking statements relating to  the 
financial condition, results  of operations  and business of  USL and  certain 
plans and  objectives  of Diageo.  These  forward-looking statements  can  be 
identified by the fact that they do  not relate only to historical or  current 
facts. Forward-looking  statements  often  use words  such  as  "anticipate", 
"target", "expect", "estimate", "intend",  "plan", "goal", "believe",  "hope", 
"aims", "continue", "will", "may", "should", "would", "could", or other  words 
of similar meaning. These statements are based on assumptions and assessments
made by USL and/or Diageo in light of their experience and their perception of
historical trends, current conditions,  future developments and other  factors 
they believe appropriate. By their nature, forward-looking statements involve
risk  and  uncertainty,  because   they  relate  to   events  and  depend   on 
circumstances that  will occur  in the  future and  circumstances could  cause 
actual results and developments to  differ materially from those expressed  in 
or implied by such forward-looking  statements. Although it is believed  that 
the expectations reflected in such forward-looking statements are  reasonable, 
no assurance  can be  given that  such expectations  will prove  to have  been 
correct and you are therefore cautioned  not to place undue reliance on  these 
forward-looking statements which speak only as at the date of this  document. 
In particular, no statement regarding earnings per share should be interpreted
to mean that earnings per share will necessarily be greater than those for any
relevant preceding  financial  period.  Neither USL  or  Diageo  assumes  any 
obligation to update or correct the information contained in this announcement
(whether as a result of new  information, future events or otherwise),  except 
as required by applicable law.

Sources of information

The share prices of USL and Pioneer in this announcement have been taken  from 
the website of National Stock Exchange of India.

Foreign exchange calculations included in this announcement have been based on
the prevailing exchange rates as at 8 November 2012 sourced from Reuters (with
the INR:£ rate being INR 86.91:£1).



                     This information is provided by RNS
           The company news service from the London Stock Exchange

END


ACQUGGPAGUPPUBB -0- Nov/09/2012 10:05 GMT