ROLE OF HR IN MERGERS &ACQUISITIONS|
DIAGEO- UNITED SPIRITS LIMITED DEAL3
CONDITIONS TO THE DEAL3
BENEFITS FOR DIAGEO6
BENEFITS FOR UNITED SPIRITS7
POST ACQUISITION MANAGEMENT8
DIAGEO- UNITED SPIRITS LIMITED DEAL
On 9th November, 2012 Vijay Mallya owned United Breweries Holdings , United Spirits and global drinks major Diageo announced a deal, which will see Diageo acquire a majority stake in United Spirits. Diageo will acquire 19.3 percent at Rs 1,440 a share from United Breweries Holdings Group, USL Benefits Trust, United Spirits' two subsidiaries - Palmer Investment Group and UB Sports Management - and SWEW Benefit Company (established for benefit of certain United Spirits employees).
CONDITIONS TO THE DEAL
* The completion of the acquisition of the shares from UB Holdings, USL Benefits Trust, Palmer Investment Group, UB Sports Management and SWEW Benefit Company is subject to several conditions, which include release of all security interests over United Spirits shares to be acquired by Diageo and receipt of all mandatory regulatory and competition commission approvals in India and elsewhere. * The preferential allotment will also have to be approved by shareholders. If they don't, then UB Holdings has agreed to sell additional shares in United Spirits to Diageo to ensure that Diageo has a minimum shareholding of 25.1 percent. * If the preferential allotment and tender offer don't result in Diageo holding a majority interest in United Spirits, UB Holdings will vote its remaining shareholding in the company as directed by Diageo for a four year period. * The two sides are also yet to take any decision on the management structure, except that Mallya will continue in his current role as Chairman of United Spirits. * There was a speculation that this deal would provide a life line to ailing Kingfisher airline. However, United Spirits itself is burdened with Rs 8,300 crore debt. The company said on Friday that the deal will enhance United Spirits' financial strength, including reduction in its net debt. Mallya said the Kingfisher issue will be addressed separately.
* Valuations were a bit on the lower side because the market was expecting this to happen anywhere between Rs 1500 plus or maybe as high as Rs 1550. * In the experts view this is slightly lower but, since the deal has happened and the broad contours of the deal is more or less on the expected lines of the tranches in the form of primary issue, in the form of part stake sale and in the form of the open offer. * There has been a tug of war between the promoters and Diageo for quite sometime. Probably, they may have reached a consensus of Rs 1440 but Rs 1500 would have been fairer considering the long term outlook of the stock. * The near-term focus will remain only on the open offer because nobody will be taking a longer view. Once Diageo comes in to the company, which will take about 6 months or so, the stocks will get vastly re-rated. * The company has FII investors to the extent of 48 to 50 percent and they take a separate view. But, the domestic investors won’t be keeping a long term horizon; they will be initially focusing only on the open offer. * Taking the above factors into consideration it might not be feasible that the share can move beyond Rs 1400. Everyone will definitely be keen to participate in the open offer and will be tendering the share. So, long term prospects are really very bright. The stocks will get highly rerated. * United Breweries is ruling at a PE multiple of close to 60 plus. Even the FY14 earnings and an expected EPS of about 50 plus for United Spirits and apply the same PE multiple or a PE multiple of 40, the share has potential to move to...