Diageo wins final approval in United deal

Diageo has crossed the final regulatory hurdle in India in the run-up to making its formal bid for control of United Spirits. The financial authorities in Bombay gave their approval to the process this morning.

Diageo will begin buying up to 26% of United Spirits’ shares next Wednesday (10 April) through a tender offer that will run until 26 April.

Assuming this offer is successful, the world’s biggest premium drinks company will buy a further 24.7% stake in the Indian group from founder VJ Mallya and his holding company, United Breweries, thus taking ownership and operational control of India’s largest spirits group.

The tender price, Diageo confirmed, will be 1,440 rupees a share, the price agreed for the Mallya stake, taking the total price Diageo will pay to about $2bn (about £1.35bn).

There will be a small additional cost because Diageo has agreed to pay United shareholders interest for a delay in the timetable. The original tender was scheduled to have begun on 18 February but was held up in the regulatory process.

Sources in Bombay expect Diageo to achieve its target without difficulty, although United Spirits’ shares have been selling at a premium in Bombay. This was due to speculation about the fate of some shares pledged by Mallya to Indian banks against loans to his grounded Kingfisher Airlines.

It was thought that Diageo’s insistence on paying “unfettered cash for unfettered shares” could lead to tight availability while doubts persisted about who formally owned those held as collateral by the banks. However, earlier this week the Bombay High Court ruled that the banks could sell those shares in the open market.

Given that they were pledged to the banks at less than half the price Diageo will pay through the tender offer, they are likely to be very happy to pass them on at a sizeable profit. Sources for Mallya said that the pledged shares were not part of the tranche involved in its part of the sale of control of United Spirits to Diageo.