London-based Diageo Plc on Tuesday launched a fresh bid to take a majority 54.78% stake in the Vijay Mallya-led United Spirits Ltd (USL) for $1.9 billion (about Rs 11,448 crore) as part of its plans to expand into emerging markets.
The news sent USL shares up 15% intra-day to a 52-week high of Rs 2,941 on the BSE. It ended the day at Rs 2,853, a gain of 11.6%.
USL is India’s top spirits maker with brands like Signature, Bagpiper, Antiquity and Royal Challenge in its fold.
The open offer is expected to begin on June 11 and the tendering period will expire on or around June 24.
The maker of Johnnie Walker Scotch and Smirnoff vodka, controls USL through its holding and a shareholder agreement, and the tender offer is unlikely to result in any management changes, said Deirdre Mahlan, chief financial officer of Diageo.
"We do think that it will be a successful transaction," he added.
Diageo had first attempted to buy 53.4% stake in USL in 2012. It was then scheduled to buy a 27.4% stake from UB Group chairman Vijay Mallya and 26% from public shareholders. However, it received a poor response to the Rs 1,440 a share mandatory open offer to shareholders in November 2012, and ended up with a stake well short of its target. The deal has also been fraught by regulatory and other hurdles.
"In 18 months, Diageo has announced a second open offer at over two times the initial one. We believe this indicates Diageo’s confidence in the potential of USL’s business as well as its commitment to India as a market," said Harit Kapoor, analyst at IDFC Institutional Securities.
Diageo said if its offer is subscribed fully, then the total consideration payable will represent a 38 times multiple of United Spirits’ EBITDA (earnings before interest, taxes, depreciation and amortisation) for the year ended March 2013. Diageo expects its total investment will be earnings per share accretive in the year ended June 2016. The company further said that the open offer is not subject to any condition regarding the level of acceptance.
Diageo has been looking to strengthen its play in emerging markets and last month carved out the India and China business into a new unit.
Mallya, on the other hand, burdened with huge debts at loss making Kingfisher Airlines.
(With inputs from Reuters)