Diageo’s Indian deal hits delay but African venture advances

Diageo’s £1.2 billion deal to acquire a majority stake in United Spirits has been held back by Indian regulators, but the company confirmed a new African joint venture with United’s owner VJ Mallya.

The UK-based drinks giant agreed to buy a 53.4% stake in Vijay Mallya’s United Spirits firm in November, with the original aim of completing the purchase by the end of March.

Earlier this month, the initial tender offer timetable was pushed back and Diageo is now understood to be caught up in protracted discussions with the Securities and Exchange Board of India (Sebi) about whether a put clause in the agreement complies with Indian laws.

The put clause would leave the door open for United Spirits to sell further shares to Diageo at a later date. However, Sebi officials are thought to have raised concerns about whether this constitutes a forward-looking contract, which is not permitted under Indian law.

In addition to this scrutiny from Sebi, the Competition Commission of India continues to express reservations about parts of the agreement it believes are too ambigious, describing the deal as a “work in progress”. Spectators now believe the transaction will be pushed back into the second quarter of the year.

Against the backdrop of these delays, Diageo announced today that it has entered into a joint venture with Mallya to acquire the firm that owns United National Breweries’ sorghum beer business in South Africa.

Having originally announced plans for the deal in November, Diageo has now confirmed its purchase of a 50% stake in the firm for US$36m (around £23m). The remaining 50% of the business will be held by a company affiliated to Mallya.

Although this deal also remains subject to approval from local competition authorities in South Africa, it is expected to complete in the first half of 2013.