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Diageo Plc doubles open offer price for United Spirits Ltd

To pay Rs 3,030 per share for 26% stake in the spirits maker, analysts see the offer aggregating Rs 11,500 crore sailing through on lender participation

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Diageo Plc is making another attempt to gain majority shareholding of United Spirits Ltd (USL) after its first open offer in November 2012 failed miserably.

The world's largest premium alcoholic beverages manufacturer with brands like Johnnie Walker, Smirnoff, Baileys and Guinness, among others, will launch an open offer to the public shareholders of USL to acquire up to 3.78 crore shares, representing 26% of USL's fully diluted issued share capital.

Diageo is offering Rs 3,030 per share, which is a premium of 22.5% to the price at which it last acquired USL shares on January 31, 2014 and 20% to the 60-day volume weighted average price.

Also, it is more than double the price of Rs 1,440 a share Diageo offered in the first open offer two years back.

The fresh offer, if successful, would take Diageo's stake in USL to 54.78%, and cost approximately Rs 11,489 crore, the company said in a statement.

The offer would be launched by Relay BV, a wholly owned indirect subsidiary of Diageo, which currently holds 28.78% of the issued share capital of USL.

The new open offer, industry experts said, was expected by the market though it was expecting it to be Rs 3,200 per share.

Ambareesh Baliga, managing partner - global wealth management, Edelweiss Financial Services Ltd, said the current offer price is 18.5% more than USL's closing share price of Rs 2,557.25 on the National Stock Exchange last week.

"The first open offer would have been successful if they had offered more, say Rs 2,200 a piece, than the market price, which was not the case. Diageo realised the more they wait the higher they will have to pay for a majority control, and hence the new offer at a fairly decent premium," said Baliga.

Post the Diageo open offer announcement on Tuesday, the USL stock jumped 11.62% closing at Rs 2,854.35 a piece on NSE.

Analysts said that approximately 40% of USL's shares are held by foreign institutional investors (FIIs), which do not have a good track record with tendering shares during open offers.

Same is likely to be true with USL's retail investors as well.

"Diageo will get 20% shareholding in USL, if even 50% of the FIIs tender their shares. This apart, the UB Group has pledged shares with lenders who could look at this (open offer) as a liquidation opportunity.

This is because lenders will look at the price and if they participate in the open offer, it will give them 20% more than what they would have got last week," said Baliga.

The open offer starts on June 11, 2014, and closes on 24 June. HSBC Securities and Capital Markets (India) Pvt Ltd and JM Financial Institutional Securities Pvt Ltd are acting as joint managers to the offer and joint financial advisers to Diageo. Bank of America Merrill-Lynch also provided financial advice.

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