Shares of liquor major United Spirits are trading 4% up in early morning trade after a late Thursday announcement that Vijay Mallya has agreed to step down as the non-executive chairman of the company, owned by world’s largest spirits maker Diageo.
Mallya gets $75 million to step down
Under the deal, Diageo will pay Mallya $75 million over five years, in return of his stepping down. Mallya has also agreed to a five-year global (excluding UK) non-compete agreement with Diageo.
Mallya’s exit gives reprieve to USL from former’s battle with Diageo
Investor interest in United Spirits is mainly due to relief. Apart from emerging from the governance shadow that had clouded United Spirits’ business plans with Mallya’s presence on the board – he has been declared a willful defaulter by Punjab National Bank – the exit of the flamboyant businessman also gives reprieve to United Spirits from the bitter legal battle between Mallya and Diageo over the chairmanship of the business.
Morning trade higher than two weeks average
In the first 45 minutes of the morning trading, 62,000 United Spirits shares were traded on the BSE, significantly higher than the two week average of 33,000 shares.
Diageo gets a free hand to drive growth
Analysts say the agreements reached between Mallya and Diageo will give Diageo a free hand to drive growth.
An internal probe had found financial irregularities at United Spirits, following which the board of directors had last year, asked Mallya to resign from the company. Mallya, who owned a 4% stake in United Spirits had refused to resign.
On Thursday, Mallya said that he has agreed a mutual release with both Diageo and United Spirits from claims concerning the alleged irregularities disclosed by United Spirits in April last year and he would now be the founder emeritus of United Spirits.
“The agreement reached is valuable to United Spirits and its shareholders. It also brings to an end the uncertainty relating to the company’s governance,” said Anand Kripalu, MD and CEO of United Spirits.