Advertise with

Diageo may put preferential issue of United Spirits on hold due to surge in stock prices
Diageo may put preferential issue of United Spirits on hold due to surge in stock prices

Diageo may put preferential issue of United Spirits on hold due to surge in stock prices

LIQUOR NEWS - Nov 27th 2012, 08:41

Mumbai: The pricing of the preferential share sale by United Spirits Ltd (USL) to Diageo may face some resistance from minority shareholders following the surge in the USL stock price, market participants said.

A fortnight ago, Diageo, the world's largest liquor company by value, said it would buy 53.4 per cent stake in USL in phases at Rs 1,440 a share. To begin with, Diageo will acquire a 27.4 per cent stake, of which 10 per cent would be through preferential allotment of shares by USL. But soon after the announcement of the deal on November 9, USL shares started rising. Since then, the scrip has risen 42 per cent to Rs 1,940. Sections in the market think the dramatic movement in the stock may compel the parties to revise the price of the transaction as well as that of the open offer to shareholders.

"There is a concern emerging that preferential allotment of additional equity shares to Diageo (post-acquisition of promoter stake and treasury shares) may not go through as planned due to the pricing mismatch," Nomura said in a note to clients on Monday.

As per the announcement by USL and Diageo, UB Holdings and other promoters of USL will sell 12.8 per cent of their total holding along with 6.5 per cent of the treasury shares. This will be immediately followed by a preferential allotment that will have to be ratified by 75 per cent of shareholders.

The minority shareholders' vote assumes significance with promoter holding at just 28 per cent in USL and the shares currently trading at a 35 per cent premium to the offer price. "There may be some opposition from minority shareholders as Diageo will be offered shares at a discount," said Motilal Oswal, chairman, Motilal Oswal Securities.

But, the proposal may sail through if large institutional investors back it," said Oswal.

"The valuation of the stock has risen only because of the Diageo brand," he added.

HSBC, Credit Suisse, Deutsche Securities and Citibank are among institutions holding shares in USL.

If the preferential allotment does not go through, then UB Holdings will sell additional shares to take Diageo's stake to 25.1 per cent as the agreement has a clause that says: "In certain circumstances, where the preferential allotment is not successful (including where it is not approved by the shareholders of USL), promoters have agreed to sell additional shares in USL to Diageo at a price of 1,440 per share to ensure that Diageo has a minimum shareholding of 25.1 per cent."

In such a scenario, the biggest loser would be Vijay Mallya as his stake in the company would come down to just 4 per cent. Some analysts think shareholders may vote keeping in mind the larger interest of the company.

"Though at a discount, many shareholders may be of the view that the preferential allotment is being made to a well-known MNC that can improve the balance sheet and profitability of USL," says Sonam Udasi, head of research at IDBI Capital.


Related News

Report: Indian Reserve Bank to rule on Walmart probe
21/10/2013 - 11:44
Bentonville, Ark. – The Indian central bank is reportedly reviewing findings of an investigation into whether Wal-Mart Stores broke that country’s investment rules in 2010.

Namibia Breweries Financial Director driven by purpose
15/10/2013 - 10:32
It is slightly less than a month since Graeme Mouton was appointed as the new Financial Director of Namibia Breweries Limited but already he says he is inspired by the O&L Purpose “Creating a future, enhancing life.”

Fountainhead delivers on market guidance and enters a new phase
14/10/2013 - 10:00
Fountainhead Property Trust last week declared a distribution for the 11 months to 31 August 2013 in line with market guidance and 2% down on its distribution for the comparable 11 months in 2012. The Trust changed its financial year-end from 30 September to 31 August.

Distell taps into China's cognac market
09/10/2013 - 10:23
Johannesburg - South African liquor company Distell Group Limited [JSE:DST] has acquired a 60% share in fast-growing liquor distribution company CJ Wines & Spirits‚ expanding its presence in the East.

Competition Commission approves Gustav Voigts Centre deal, Oryx Properties, Growthpoint, Namibia
09/10/2013 - 08:47
The Namibian Competition Commission has given its blessings to the deal in which Oryx Properties was seeking permission to acquire the Gustav Voigts Centre from Growthpoint Properties.