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Diageo snaps up majority stake in United Spirits for $2bn

By Joe Whitworth , 12-Nov-2012

United Spirits key brands. Picture courtesy of Diageo
United Spirits key brands. Picture courtesy of Diageo

Diageo has reached a £1.28bn ($2.04bn) deal for a 53.4% controlling stake in Indian-based United Spirits group, a decade after exiting the country’s market.

The UK drinks producer also announced it is considering extending a JV with United National Breweries’ sorghum beer business in South Africa to target emerging markets.

Diageo said it would acquire a 27.4% stake for £660m ($1.01bn) in United Spirits Limited (USL), the leading spirits company in India, in a deal which is expected to be completed in the first quarter of 2013.

This triggers an obligation to launch a mandatory offer which Diageo said would be for 26% of the Indian spirits company for a £625m ($993m) sum.

According to 2011 Euromonitor data, United Spirits had a 43% share of India’s whiskey market, Pernod Ricard SA 15% and Diageo just 0.1% of the share. 

JV to target emerging markets

Diageo and Dr Vijay Mallya, chairman of USL, and UBHL, have also entered into a memorandum of understanding to form a 50:50 joint venture to own United National Breweries’ sorghum beer business in South Africa.

Diageo’s investment for its 50% interest in the joint venture is expected to be $36m. Diageo and Dr Mallya are also considering the possibility of extending it to maximise opportunities which exist in certain emerging markets in Africa and Asia.

The companies had held previous talks which failed in 2009 but this year on 25 September they announced that negotiations with United Breweries and United Spirits had re-started.

Diageo revives taste for market

Diageo withdrew from Asia in 2002 to focus on its core North American and Western European markets, selling its Indian spirits operations.

It has attempted to get back into the market since 2006 with brand launches and other JV attempts.

Paul Walsh, chief executive of Diageo, said it was an opportunity for the company to be part of the large and growing local spirits market.

“As a result of the agreements…we will be well positioned to take the growth opportunities presented by a spirits market where growth is driven by the increasing number of middle class consumers.

“USL’s number 1 position in local spirits together with our growing international spirits business of leading brands will enable us to grow across the consumer space as India’s increasing number of middle class consumers look to enjoy premium and prestige local spirits brands as income levels rise.

“The combination of USL’s strong business with the capabilities which Diageo brings as the world’s leading premium drinks company will ensure that USL continues to lead the industry in India.”

United Spirits is India’s largest spirits producer and the only one with national distribution and production networks.

Dr Vijay Mallya, chairman of the UB Group, said: “I have had a long association with Diageo and therefore I am confident that this winning partnership with Diageo provides USL with the best possible platform for future growth.

“I am delighted to remain part of that journey as Chairman of USL as we work together to build continued value for the shareholders of USL and UBHL.”