All you need to know about the not so good times between Vijay Mallya, Diageo

The long drawn battle for control of United Spirits Ltd (USL) has finally ended with Vijay Mallya agreeing to step down as chairman. The flamboyant businessman will get $75 million (approximately Rs 515 crore) from Diageo as a part of an "agreement" for his exit from the company.

The company was founded by Mallya's family and is now run by the global liquor giant.

Besides, Diageo has agreed that Mallya will have no "personal liability" to the UK-based company in relation to the findings of the alleged financial irregularities that had triggered an acrimonious battle between them.

Diageo offers Mallya palatable deal

Diageo will pay Mallya Rs 515 crore as part of a five-year non-compete agreement.

However, his son Siddharth Mallya will remain on the board of the USL group company which holds the Royal Challengers Bangalore IPL franchise, and Diageo cannot "seek to remove him from that board for a period of two years."

Daddy Mallya will hold the honorary title of the team's chief mentor.

Also read: King of Good Times steps down; to receive Rs 515 crore from Diageo

Diageo said it will pay $40 million (Rs 274.9 crore) of this amount immediately, with the balance payable in equal installments over five years.

Separately, Diageo has agreed that Mallya will have no personal liability to the company in relation to the findings of the inquiry by USL (announced on 25 April 2015) into certain matters referred to in its financial statements and the qualified auditor's report for the financial year-ended March 31 2014, and its prior agreement with Mallya regarding his position at USL.

Diageo also said it has extended Smirnoff's sponsorship to the Force India Formula 1 team of which Mallya is team principal and part-owner for the next five seasons.

The cost of this sponsorship continues to be $15 million per season.

Mallya-Diageo relationship turns sour

The allegations of financial mishandling, which surfaced after an internal inquiry conducted by Pricewaterhouse Coopers (PwC), related to the period before Diageo acquired a controlling stake in USL from the Mallya family. Diageo acquired a small stake in the company in 2012, which was later hiked to 26% in June 2014. Now the company owns 54.7% of USL.

The allegations started in April 2015 when Diageo-controlled USL Board said it had "lost confidence" in Mallya after an internal probe and a forensic inquiry by PwC revealed alleged fund diversion to Kingfisher and other United Breweries group entities.

Diageo had asked Mallya to step down as Chairman and Director of the Indian liquor firm. However, Mallya refused to resign and said the inferences and allegations were unjustified and false.

"The inquiry revealed that between 2010 and 2013, funds involved in many of these transactions were diverted from the company and/or its subsidiaries to certain UB Group companies, including, in particular, Kingfisher Airlines Ltd," USL Board said in its inquiry report.

Regarding the PwC report, Mallya had said, "I don't want to answer about anything. I have not commented to the media and I don't want to comment."

Also read: New owner Diageo asks Vijay Mallya to quit United Spirits board alleging fund diversion

Mallya refuses to step down

Mallya had struck a defiant note saying he 'intended' to continue as its chairman and refuted the charges made by the company's board with regard to its prior-period accounts.

He also said that only "shareholders can 'oust' a director" and that he would continue to function as USL Chairman "in the normal manner".

Reacting to the charges, he said in a statement, "All I wish to say is that I intend to continue as Chairman of USL in the normal manner. This includes chairing monthly operating review meetings and board meetings."

Also read: Vijay Mallya refuses to step down, says only shareholders can 'oust' him from USL

USL received notices from the Ministry of Corporate Affairs and the I-T Department for inspection of its books subsequent to a probe ordered by its new management over alleged irregularities in loans given by it to various companies of Vijay Mallya-led UB Group. This was in May 2015.

Also read: More trouble for Vijay Mallya; United Spirits gets MCA, I-T notices

Mallya accepts fate

Mallya in April 2015 signalled that he would be willing speak to Diageo on the issue. He said he will discuss the issue bilaterally with the world's largest spirits maker.

Also read: Will discuss with Diageo bilaterally to resolve Chairmanship issue: Vijay Mallya

"Diageo has contractual obligation to support me as a chairman and director on the USL Board. Today, with their statement, they have confirmed it. I will discuss the issue with Diageo bilaterally," Vijay Mallya had told PTI.

In February this year, he finally gave in and said that he was willing to step down from the board of USL if Diageo offered him a palatable settlement agreement, according to a report in The Wall Street Journal.

In the report, he said that he has an emotional connection to USL and he wanted the company to continue to prosper and grow. He said that he would not like the management and the board to be distracted by all these issues.

He further added that it is in the interest of both parties to arrive at a mutual settlement as soon as possible.

Mallya's liabilities a drag on Diageo

Diageo has said it may not be able to fully recover a loan of $135 million given to Vijay Mallya-affiliated Watson Ltd by Standard Chartered Bank where it had acted as a guarantor in case it is asked to pay up.

The world's largest spirits maker, Diageo, which acquired control of United Spirits (USL) in 2012, had issued a guarantee to Standard Chartered Bank for a $135 million (around Rs 900 crore) loan to Watson to release certain USL shares that were to be acquired as part of the deal.