Diageo Plc (DGE) is in talks to buy a stake of about 20 percent in Vijay Mallya’s United Spirits Ltd. (UNSP) in a deal that would give it management control of the Indian distiller, said two people with knowledge of the matter.
Diageo would buy new shares in United Spirits and also purchase part of Mallya’s 28 percent stake, said the people, who asked not to be identified as the process is private. Diageo would get the right to appoint United Spirits’s chief executive officer and other key managers, while Mallya is expected to remain chairman, they said.
Taking management control could trigger Indian takeover rules that would force Diageo, the maker of Johnnie Walker Scotch whisky, to make a so-called open offer for a further 26 percent of United Spirits, said the people. A deal would allow Mallya to free up money for his struggling Kingfisher Airlines Ltd. (KAIR) while giving Diageo a stronger foothold in the world’s second-most populous country.
Diageo will probably pay a premium to the market price for the United Spirits stake, one of the people said. United Spirits, the maker of McDowell’s whiskey, has soared 159 percent in Mumbai trading this year, taking its market value to 167 billion rupees ($3.16 billion). The stock rose as much as 5.2 percent yesterday, closing up 4.2 percent at 1,276.45 rupees.
Diageo rose 0.6 percent to 1,782.5 pence at the close of trading in London yesterday, giving the company a market value of about 44.7 billion pounds ($72 billion).
Buying a stake in United Spirits “is a positive move if it can be achieved on the right terms,” said Martin Deboo, an analyst at Investec Securities in London. India is “a strategically important market” where Diageo has historically trailed competitor Pernod Ricard SA, he said.
Diageo and United Spirits announced the acquisition talks in a Sept. 25 statement to the London and Bombay stock exchanges, without giving details. Discussions are ongoing and terms of a deal may change, the people said.
Prakash Mirpuri, a spokesman for United Spirits, declined to comment beyond the Sept. 25 statement.
Mallya, 56, would keep about a 10 percent stake in United Spirits after the transaction, one person said. He gave 59 billion rupees of guarantees last year to Kingfisher’s lenders, according to the company’s annual report. The carrier is struggled to pay bills, wages and debts after posting five straight annual losses.