Diageo makes £1.1bn play for United Spirits

 
Oliver Smith
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DRINKS giant Diageo has launched a $1.9bn (£1.13bn) bid to nearly double its stake in India’s largest spirits firm United Spirits.

The bid, if successful, would give Diageo a controlling stake in United and better position the firm to take advantage of India’s increasingly wealthy consumers.

FTSE 100 component Diageo currently holds a 28.8 per cent stake in United which, if the bid is successful, will increase to 54.8 per cent.

“Diageo is doing the right thing, given the very significant long-term upside for the Indian spirits market and the opportunity, we believe, to significantly raise [United Spirits’] margins over time,” said Citigroup analyst Andrea Pistacchi.

The spirits market in India was worth €11.9bn (£9.8bn) in 2012, according to research firm IWSR, and is being driven by growth of high-end brands.

Diageo offered to buy shares at 3,030 rupees (£29.90), a premium of 18.5 per cent to the last closing price, sending the stock up 12 per cent as a result.

“Formal majority control of United Spirits could help ensure a faster and smoother delivery of Diageo’s objectives. Therefore, in the broad scheme of things, we don’t think £1.1bn (in addition to about £700m paid so far for its current stake) is an outrageous price to pay to ensure that its shareholders get the majority of the long-term upside,” added Pistacchi.

BEHIND THE DEAL
BANK OF AMERICA ML | SIMON MACKENZIE-SMITH

1 Mackenzie-Smith is chairman of Bank of America Merrill Lynch’s UK & Ireland corporate and investment banking business.
2 As well as being a judge for the City A.M. Awards, Mackenzie-Smith is a respected deal-maker credited with being instrumental in revitalising the bank’s UK franchise.
3 He has worked on a range of M&A deals and restructurings including FTSE 100 engineering firm Amec’s £2bn takeover of US rival Foster Wheeler in February.

Also advising...
Diageo is being principally advised by HSBC Securities and Capital Markets in India with JM Financial Institutional Securities acting as joint managers and financial advisers. BoAML is also providing advice with a team including Peter Luck in London, and Raj Balakrishnan and Harsh Parikh in Mumbai.