Diageo increases stake in United Spirits to 55.9%

British drinks giant Diageo has raised its controlling stake in Indian beverage company United Spirits to 55.9% as part of its long-term premiumisation strategy in the Indian market.

Diageo first began talks to invest in United Spirits (USL) back in 2008, eventually acquiring a 54.7% stake in 2014 for £1.85 billion.

Last year, the British drinks company increased its stake to 55.2%, spending a further US$27.3 million (£21.4m). Also in 2019, Diageo announced that USL was set to merge with its Pioneer Distilleries subsidiary.

At the end of last month, Diageo acquired a further 5,075,000 shares, equivalent to a 0.7% shareholding, in USL for INR693.25 (£7.41) per share.

Diageo said that in the first half of the 2020 fiscal year, its ‘prestige and above’ segment in the Indian market grew by 5% driven by the performance of the Johnnie Walker Black and White labels.

Last month, however, Diageo warned that up to £200 million may be wiped off its profits as a result of the outbreak of Covid-19 (coronavirus) in China. The company also received a US$5 million fine after its North American business created a “misleading picture” of its financial results posted in 2014 and 2015.

Vijay Mallya

Diageo’s control of USL has also seen the company take legal against the fugitive former head of the Indian firm, Vijay Mallya.

In February 2016, Diageo agreed a deal which would see the company pay Mallya US$75m to step down as non-executive chairman of USL. The following month, Mallya fled to the UK after an Indian court issued an order to seize his diplomatic passport.

Since then, Indian authorities have been battling to have Mallya extradited back to India to face charges of fraud and money laundering. Mallya has always maintained his innocence.

In July 2017, Diageo attempted to recover part of the £53m it had already paid out to Mallya and said it would withhold further payments to the businessman.

In May 2019, Diageo won a summary judgement and Mallya was ordered to repay US$135m over a loan guarantee default. In July 2019, Mallya was granted an appeal for his extradition order, and the three-day hearing was held in February 2020. The court verdict is yet to be delivered.