Diageo's open offer for 26% stake in United Spirits fails

Moneycontrol Bureau

As expected UK based Diageo's open offer for a 26-percent stake in United Spirits has failed. However this is unlikely to stop alcohol giant from acquiring the Vijay Mallya-owned company, according to a report by Wall Street Journal. 

On April 10, London-based company had offered to acquire 38 million shares of United Spirits from public shareholders at Rs 1,440 per share. The open offer price was around 20 percent lower compared to the closing price of United Spirits' stock on the day before the offer opened.

SP Tulsian of sptulsian.com said that this outcome was expected as no investors would tender at such low offer price. "So now probably, the market is expecting that Diageo will really be very aggressive in buying it from the open market because prior to the open offer, they said that they won't be raising the open offer price. Since the open offer has come to an end, now there are no restrictions on them to buy from the market," he added.

Also read: United Spirits to be one of best consumer stories: Nomura

In November, Diageo had announced to acquire 53.4 percent in United Spirits for USD 2 billion. The failure of the open offer would leave Diageo with less than 30-percent stake United Spirits. According to the terms of the November deal, Diageo would get 19 percent from the promoter entities and would also be allotted a further 10 percent stake by way of a preferential allotment. Mallya's UB Holdings has said it will retain a 15 percent stake after the deal is completed.

Till April 26, investors have tendered their shares, however none of the companies involved have yet shared result of the open offer.

Now it remains to be seen how Diageo manages to increase its stake in the Malaya-owned company, as around 3 crore worth of shares of the company are lying with banks.

"Whether those shares will be routed through to Diageo pursuant to the contract having entered with United Breweries Group at Rs 1,440 or those lenders will impress upon the UB Group to pay at the market price is to be seen. The drama will really start now that how Diageo chalks out a strategy to increase its stake. It may first acquire a 26-percent stake from UB Group and then thereafter increase its stake marginally, maybe via creeping acquisition route every year by five percent," Tulsian noted.