Leading brewer and distributor Diageo plc (DEO) has increased its ownership in United Spirits Limited by a further 14.98% for a cash consideration of £344.2 million. This acquisition takes Diageo another step toward its goal of acquiring 27.4% ownership in this leading spirit company of India.
In Nov 2012, Diageo and United Spirits Ltd. announced an agreement under which Diageo will acquire a 53.4% stake in the latter for £1.285 billion ($2.05 billion). This will allow Diageo to gain a foothold in the fast-growing alcohol market in India.
Under the agreement, initially Diageo was to buy 27.4% stake in United Spirits for INR 1440 per share ($26.32 per share), amounting to a total consideration of £660 million ($1.05 billion), and make a tender offer for the remaining 26%.
Diageo will finance the acquisition, slotted to be closed in first quarter of fiscal 2013, through existing cash and debt. The joint venture received a clean bill of health from the fair trade watchdog Competition Commission of India (CCI).
Dr. Vijay Mallya, the Indian entrepreneur and owner of United Spirits, needs sufficient cash to bail his Kingfisher Airlines out of bankruptcy. While the acquisition will help reduce the debt, it will also provide bright opportunities for the company. Following the acquisition, Dr. Mallya will continue in his current capacity as Chairman of United Spirits.
In Dec 2012, the shareholders of United Spirits Limited approved the preferential allotment amounting to 10% of the post-issue enlarged share capital to Diageo. It also acquired some additional shares during the same period. With the recent takeover, Diageo now owns 25.02% of United Sprits Limited.
Diageo upgrades its products through continuous innovations. Recently, keeping in view the bright future of the luxury alcohol category in the global luxury market, the company launched a limited edition of Johnnie Walker Blue Label crafted by Alfred Dunhill. The new product joins the Richemont luxury br! and of blue scotch owned by the company.
Diageo has a leading position both in the beer and vodka markets with a strong portfolio of globally recognized flagship brands, including Smirnoff, Johnnie Walker, Captain Morgan, Baileys and Guinness.
DEO currently carries a Zacks Rank #3 (Hold).
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Others players in the same industry which look attractive at the current levels include Fortune Brands Inc. (FBHS) and Restoration Hardware (RH) and Flower Foods Inc. (FLO), all carrying a Zacks Rank #1 (Strong Buy).
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