The order comes on a winding-up petition filed by creditors of UBHL; Diageo's stake in USL is now down to 19.39%.
In a setback to Vijay Mallya, Karnataka High Court on Friday ruled that the sale of United Spirits Ltd (USL) shares held by parent company United Breweries Holding Ltd (UBHL) to Diageo was void.
The division bench of the High Court in its order said Diageo, the world’s largest spirits maker, will have to return the shares purchased from UBHL.
This comes after the creditors of UBHL, including BNP Paribas, IAE International Aero Ltd, Avions De Transport Regional GIE and Rollys Royce, appealed to the Karnataka High Court in a winding-up petition to claim unpaid dues of Rs 600 crore.
As a result, 10.14 million shares, or roughly 6.98% stake, that Diageo had acquired from UBHL will become “null and void”.
Diageo’s stake in USL will come down to 19.39% from the current 26.3%.
Despite this Diageo will remain the biggest shareholder in USL.
Meanwhile, UB group is planning to move the Supreme Court.
Prakash Mirpuri, spokesperson of UB Group, said, “One of the obvious options that we have now is to appeal before the Supreme Court when it reopens in January.”
Vijay Mallya, chairman of the UB group, said, “We will take all necessary steps to protect Diageo’s interests as well as our own.”
Some analysts believe that there is still a chance that Diageo may be able to hold on to shares.
“The HC order is protecting the interests of unsecured lenders, who have the lowest right on shares over other class of creditors. One would have to wait for the Supreme Court verdict on the same,” said S P Tulsian, an independent analyst.
Earlier the Karnatka HC had provided conditional permission to UBHL to sell USL shares to Diageo, but had directed the company to deposit Rs 250 crore with the court’s registry immediately after receipt of sale consideration.
Nitin Mathur, analyst with Espirito Santo Securities, said this judgement is not the end of the saga.
“This deal is not new to complexities which started at the initial phase itself when certain lenders to USL refused to release the securities that they held (constituting about 2.38% of the capital) despite that being a part of initial share purchase agreement,” he said.
In a multi-layered deal, Diageo had last year announced it would pick up a 53.4% stake in USL for Rs 11,166.5 crore.
As part of that deal, 26% shareholding was to be acquired through an open offer.
However, the open offer failed.
Five months ago, Diageo had announced completion of a 25.02% stake buy in USL. In November, Diageo picked up another 1.3% stake from the open market at Rs 2,400 per share, taking it to 26.3%.
Unfinished business
In a multi-layered deal, Diageo had last year had announced it would pick up a 53.4% stake in USL for Rs 11,166.5 crore.
As part of that deal, 26% shareholding was to be acquired through an open offer. However,
the open offer failed.
Five months ago, Diageo had announced completion of a 25.02% stake buy in USL.
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