India'a Karnataka high court approves sale of United Spirits shares to Diageo that would give Diageo majority interest in United
May 27, 2013
(Times of India)
– Karnataka high court delivered some cheer to beleaguered Vijay Mallya's investment holding company United Breweries Holdings (UBHL) after it allowed sale of United Spirits Limited (USL) shares to British spirits giant Diageo.
With this, the $2 billion takeover of USL has crossed a major hurdle. The court order will help Diageo mop up an initial 27.4% stake, provided the lenders to Mallya's grounded Kingfisher Airlines create no further hiccups. The High Court cleared the stake sale while considering a set of winding up petitions by the airline's unsecured creditors.
The judgment comes as a breather for Mallya and helps him speed up the multi-phased complex deal making with Diageo, the world's largest drinks company and makers of Johnnie Walker and Smirnoff brands. UBHL shares soared 9.9% on BSE following the court order.
Diageo will soon take ownership of the 10% preferential allotment made by USL, and now has a chance to purchase the entire 12% UBHL shares and around 5% treasury stock (diluted post preferential allotment).
The SBI-led consortium has threatened to invoke UBHL corporate as well as Mallya's personal guarantees to recover bad loans of KFA estimated at over Rs 8,000 crore.
Diageo, which has management control as part of the takeover deal, has insisted on taking possession of the unencumbered shares. Mallya, who would remain USL chairman, must vote along with Diageo for the initial four years.
The Friday judgement provides comfort to Diageo too. If the share sale hadn't been approved, Diageo would have had to be reconciled to owning a smaller stake than Mallya despite enjoying boardroom control. The London listed giant's open offer to buy 26% from Indian public shareholders has already collapsed with just 0.4% tendering shares. This was a route envisaged to buy 53.4% shares of India's largest distiller.
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