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Diageo Officially Ups USL Stake To 25%, Takes Control Of Indian Spirits Giant

July 8, 2013

Diageo has completed the final phase of its multi-part deal to become the largest shareholder in India’s United Spirits Ltd. (USL), adding 14.98% over the weekend from a share purchase agreement with Vijay Mallya’s UBHL to bring its holding in the company to 25.02%. Diageo says it will now effectively control USL, which leads India’s growing spirits market. Diageo paid a total of £594 million ($886m) for its stake, representing a multiple of 18 times EBITDA for USL’s fiscal year ended in March, and expects the acquisition to be earnings-per-share accretive in year two.

Vijay Mallya will continue in his role as USL’s chairman, and CEO Ashok Capoor will also stay on. Diageo’s representation on USL’s board will include its Asia Pacific president Gilbert Ghostine, as well as Ravi Rajagopal and P. A. Murali, who will serve as CFO.

“Through this acquisition we have transformed our position in India, (which) will become one of Diageo’s largest markets,” said Diageo CEO Ivan Menezes.

While it expects to control USL through its stake, board appointments and “other governance agreements agreed with UBHL,” Diageo gained only about half the share in the company it had originally proposed last fall, as most USL shareholders opted to pass on its open offer for another 26%.

Nevertheless, the acquisition establishes Diageo as a dominant player in India’s domestic spirits industry—USL had 11 entries among Impact’s exclusive ranking of the world’s top 100 spirits brands for 2012, with nearly half of them in double-digit growth—and provides a ready platform on which to build its global premium portfolio in the country. While imported spirits prices can be prohibitive due to high tariffs in India, Diageo’s Johnnie Walker Scotch whisky and Smirnoff vodka already have a foothold in the market—Johnnie Walker is nearing the half-million-case mark in India, while Smirnoff’s volume is nearly twice that.

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