The Diageo deal is crucial for Vijay Mallya and his UB Group, burdened with a debt of `22,999.11 crore as of 31 March 2012. Photo: Mint
Seeking clearance to sell assets after stake buy is not common, as Diageo is acquiring USL’s equity, not assets
Mumbai: India’s stock market regulator has approved UK-basedDiageo Plc’s proposal to acquire a majority stake in Vijay Mallya-runUnited Spirits Ltd (USL) for $2 billion (Rs.10,860 crore today), with the unusual inclusion of a key clause that will allow the buyer to sell the assets of the company.
The Securities and Exchange Board of India (Sebi) approved on 5 February the clause in the open offer document of USL that enables the sale of the company’s assets and investments by Diageo within two years. This will be subject to shareholder approval, said two persons with direct knowledge of the matter.
On 31 December, USL had net fixed assets of at least Rs.2,000 crore and another Rs.6,000 crore in various other assets.
“Diageo has to take prior approval from USL shareholders through a special resolution to sell USL’s assets. The merchant banker had sought a clearance to allow Diageo to sell USL’s assets after the open offer with just a board approval. Sebi has modified that,” one of the two persons said. JM Financial Institutional Securities Pvt. Ltd is the merchant banker to the deal.
Sebi declined to comment for the story.
Diageo made the applications through its adviser and hence all questions should be directed to JM Financial, said Prakash Mirpuri, vice-president (corporate communications) at UB Group, of which USL is a part. “We are unable to comment,” Mirpuri added.
Diageo executives did not offer any comment for the story. JM Financial also declined comment.
Seeking regulatory clearance to sell assets after an equity stake acquisition is not common, according to analysts and investment bankers, as Diageo is acquiring USL’s equity and not assets. In an asset-acquisition deal, the acquirer gets immediate rights over the target firm’s assets, but that’s not the case in stake sales.
In an equity deal, the acquirer gets voting rights, management control and board representation. In such a deal, the acquirer can sell the assets of the target company two years after the takeover, and even for that it needs the approval of the board as well as shareholders.
“Asset stripping is not common—that too within two years of open offer. Diageo may plan to sell those assets of USL that are non-core to Diageo’s global business,” said the head of equity capital markets at a large overseas investment banking firm on condition of anonymity.
A senior analyst tracking USL, who didn’t want to be named, said Diageo may want to sell non-core assets such as sporting assets and real estate.
The deal is crucial for Mallya and his UB Group, burdened with a debt of Rs.22,999.11 crore as of 31 March 2012.
The particular clause in the open offer document reads: “The acquirer and the PACs (persons acting in concert) currently do not have any intention to alienate, whether by way of sale, lease, encumbrance or otherwise, any material assets of the USL group during the period of two years following the completion of the offer, except in the ordinary course of business…with the prior approval of the board of directors of the target (USL) as being in the interest of the USL group, or by way of alienation of material assets of the USL group that are determined by the board of directors of the target as being surplus and/or non-core.”
It goes on: “It shall be the responsibility of the board of directors of the target or of any of its subsidiaries to make appropriate decisions in these matters in accordance with the requirements of the business of the USL group...if the acquirer and the PACs intend to alienate any material asset of the USL group, within a period of two years from completion of the offer, the target shall seek the approval of its shareholders.”
Sebi had initially questioned the intention of the acquirer, but later cleared the open offer application on condition that such a sale can happen only after USL’s shareholders approve it.
The world’s largest liquor firm and makers of Johnnie Walker scotch whiskey and Smirnoff vodka, Diageo agreed to acquire 53.4% of USL in November. It is buying a 27.4% stake in USL, including 19.3% from Mallya, for £660 million (around Rs.5,353 crore today), and pumping in fresh equity.
The British distiller agreed to follow up the purchase with an open offer to buy 26% of USL from public shareholders at Rs.1,440 per share—the price paid for the direct purchase.
Diageo was originally scheduled to start the open offer on 7 January, but it was postponed as both Sebi and the Competition Commission of India (CCI) had sought more information related to the transaction. CCI cleared the proposal on 28 February.
Mallya is expected to use part of the proceeds of the Diageo deal towards debt repayment and equity infusion in Kingfisher Airlines Ltd, grounded since 1 October.
In mid-February, lenders to Kingfisher Airlines said they had decided to recall all loans given to the airline, kicking off the process for the recovery of Rs.7,000 crore in debt.
No comments:
Post a Comment