Acquisition of USL by Diageo

1. Acquisition of USL by Diageo
Group
K.Hrushikesh Reddy

2. Reasons for Acquisition
 USL has 56% of Market Share in
India.
 Growth Rate of liquor industry is 15%
 Dealer and Distributor network
 Procurement of multiple licenses
 Knowledge of local choices of
consumers
 Probable intention to finance Airlines
by Mallya & Co.

3. Deal
 Diageo wants brands that can be
premiumised and appeal to the
growing middle class segment.
 Creation of SPV based in Netherlands
 USL is second largest distiller by
volume. Diageo largest distiller by
value

4. Deal
 Primary Objective : To get a controlling
stake in USL by Diageo Group
 Goal: Diageo to acquire more than
50% stake
 Preferred Deal Structure:
◦ Get 10% through Preferential Allotment
◦ Buy 17% of stake from UBHL(Mallya &
Co)
◦ Buy 26% of shares through open offer
 Mallaya & Co will still have significant
stake(10%) after the deal.

5. Deal
 Actual Outcome: Only 0.04% acquired
through open offer because
◦ Sudden spurt of share price by 47% from
the day deal was announced
◦ Shareholders refusal to sell as company
prospects are expected to improve due to
better and experienced management
 Much of the capital raised through
Preferential Allotment will be utilised to
pay offdebt

6. Deal
 CCI(Competition Commission of India)
gave its acceptance because
◦ Presence of other Competitors in Market
◦ No Overlap Between Products of USL
Group and Diageo Group
◦ Probable introduction of new products
thereby expanding choice set for
consumer

7. Deal
 Deal was publicly announced in
November 9, 2012.
 The Deal ran through legal hurdles. It
took eight months
 Foreseeing possible uncertainties,
Diageo group had a voting agreement
with UBHL group.
 Actual acquisition is 25.02% stake
 JM Financial Ltd and HSBC Holdings
arranged the deal

8. Timeline

9. Commerce
 Entirely financed through Debt.
 Effective Interest rate is 3.8 %.
 Additional investment of £1,118 million
for 26% of equity at a price of Rs 3030
per share on 2nd July 2014. At that
time share price is Rs 2450. Now it is
Rs 3650
 It is 38x multiple of USL’s EBITDA .
Generally it will be 8-10 times
 Diageo Group now owns 54.78% of
stake in USL

10. Other Outcomes
 SEBI has allowed sale and purchase
of securities pursuant to an option
subject to certain conditions.
 SEBI allowed non-residents to
purchase shares on the stock
exchange under the FDI route if the
shares are of a company which is
controlled by the nonresident

11. Thank you