The Competition Commission of India, whose approval is necessary for all major mergers and acquisitions involving Indian companies, is the second regulator after market watchdog Sebi to express its reservations over this deal.
CCI is not comfortable with the deal terms that provide for the existing promoters of United Spirits Ltd (USL) giving a preferential treatment to Diageo, if it fails to get the required number of shares from public shareholders through an open offer, sources close to the development said.
The anti-trust regulator has asked the companies to rework the ambiguous parts and make the deal more definitive in nature, sources said, adding that CCI might even send back the application, if the companies fail to satisfy its concerns.
At the same time, Sebi (Securities and Exchange Board of India) has also expressed reservations about the preferential allotment of shares to acquirers if the open offer fails to elicit desired response from non-promoter shareholders.
Sources said Sebi is looking to ensure a fair play for minority shareholders vis-a-vis the benefits accorded to the acquirer entity.
UK-based Diageo had announced a deal on November 9, under which it agreed to acquire up to 53.4% stake in USL for an aggregate amount of Rs. 11,166.6 crore.
As part of the deal, Diageo would acquire 27.4% stake for Rs. 5,725.4 crore through a combination of share purchase from existing promoters and preferential allotment of shares. In addition, it will acquire further 26% stake for Rs. 5,441.07 crore through open offer.
Any acquisition of 25% or more stake in a listed company triggers a mandatory open offer for purchase of additional 26% stake from the public shareholders and the same needs to be cleared by the market regulator.
The proposed open offer for an additional 26% stake in USL entails purchase of about 3.8 crore shares at a price of Rs. 1,440 per share, totalling to Rs. 5,441 crore, by Relay BV, a wholly-owned subsidiary of Diageo.
The open offer price has emerged as another area of concern as the share price of USL had surged above Rs. 1,440-level in the very next trading session after announcement of the deal on November 9. Later, the stock had surged to as high as near Rs. 2,100 level and is currently trading at about Rs. 1,826.
USL, the country's largest spirits company, is part of Vijay Mallya-led UB Group, whose aviation venture Kingfisher Airlines has been going through turbulent times for many months now and its licence is currently suspended.
Sebi last week sought fresh clarifications from Diageo regarding its Rs. 5,441 crore open offer for purchase of shares from public shareholders of Vijay Mallya-led UB Group firm.
The open offer was earlier scheduled to begin on January 7, but got delayed pending regulatory approvals from Sebi and CCI. While Sebi had first sought clarifications on the open offer in December, it was not satisfied with the details submitted to it and sought fresh clarifications last week.
Sources said the regulator is not comfortable with certain provisions of the proposed offer, including those related to preferential allotment of shares, and it fears that the minority shareholders might be at disadvantageous position under the existing terms of the deal.
The bankers had submitted their reply to Sebi after the latter sought clarifications from them in December, but the regulator has now sought fresh clarifications from them.
As per Sebi's latest weekly status update of pending open offers as on January 11, the "reply (is) awaited" from the merchant bankers for United Spirits open offer.
Sebi had received the draft letter of this open offer on November 29.
An acquirer can go ahead with the open offer only after Sebi issues its "observations" on the same.