USL appeals for shareholder approval

India’s biggest spirits group, United Spirits (USL), is to try again for shareholder approval to produce and market Diageo brands in the subcontinent.

Vijay Mallya, USL chairman

Diageo owns 55% of USL but was precluding from voting on the “related-party transactions” when resolutions to that effect were rejected by 29.8% of the public shareholders at the end of November. The interests of VJ Mallya, the USL chairman, were also excluded from the vote, which required 75% approval.

Now USL is to ask investors to approve similar resolutions at a new Extraordinary General Meeting on January 9.

The vast majority of the “free” shares are held by investment institutions which are widely believed to have rejected the initial plan because they did not receive sufficient information on how it would benefit USL (rather than Diageo). Observers also suggested that the plan was rejected in protest at Mallya remaining chairman of USL while inquires into various transactions between the company and his United Breweries are being investigated.

USL estimates that approving the plans for it to produce and sell Diageo brands in India will generate roughly £70m in additional sales in the first year. It is thought that at present USL generates roughly £425m from distributing Diageo brands in India as an agent. There will also be economies in scale at production plants.

UNder the new plan, Diageo will share marketing and advertising expenses,but will benefit from the sales uplift, production cost savings and the eventual closure of its own Indian subsidiary.

Observers believe that Diageo in particular will have held detailed discussions with Indian investment institutions to encourage them to vote for the plans at the renewed EGM. They say Diageo would not wish to risk the embarrassment of a second rejection.