Diageo can raise stake via creeping acquisition, open offer: Lawyers - Business Standard

British firm Diageo Plc, whose stake in United Spirits is now reduced to below 20 per cent following the Karnataka high court's judgement on Friday, has the option to raise stake in the company via the creeping acquisition route or launch yet another open offer for USL shareholders, say lawyers.

"The company should first appeal against the HC order in the Supreme Court and technically the creeping acquisition route is open to them which allow a promoter to raise stake by 5% per annum," RS Loona, managing partner of Alliance Corporate Lawyers.

"But Diageo has to take a call whether it makes business sense to go via the creeping acquisition route," he added.

The creeping acquisition route will be costlier for Diageo as the share price of United Spirits has shot up 85% to Rs 2,670 a share as on Friday as compared to Rs 1,440 a share it paid last year while acquiring the company from Vijay Mallya. The second option for Diageo will be to launch another open offer for United Spirits based on current market price and negotiate with institutional investors to sell their shares. Diageo's first open offer in April this year failed to generate any interest among USL shareholders as the market price was far above the offer price.

The Karnataha High Court on Friday ruled as void the sale of 6.9 per cent stake in United Spirits, by United Breweries Holdings Ltd, to Diageo.  The court overturned an order, passed in March by a single-judge Bench in the company court, allowing Vijay Mallya's UB Holdings to sell a significant part of its stake in USL to Diageo. UBHL was guarantor to Kingfisher loans alongwith Mallya and hence KFA lenders took UBHL, Mallya to court to get their loans back. With this order, Diageo's stake is now down from 26.4% in USL (see chart).

As part of the agreement between UB Group and Diageo, signed in November 2012, United Breweries Holdings Limited (UBHL) sold 6.9 per cent of its 14.16 per cent holdings in United Spirits for Rs 1,460 crore. But the bankers and lessors of Kingfisher Airlines immediately sued United Holdings in the court as United Spirits shares were pledged with the lenders. KFA owes close to Rs 7,000 crore to its lenders and has defaulted to loans to the government owned banks.

For Diageo, which is now caught in litigation between Mallya and Indian banks, the low stake in United Spirits is a great cause of worry. With just 19% stake in United Spirits as compared to its initial plans to buy 53.4%, the litigation ahead can be a long winding road. The British company said on Friday that it wants to file a plea in the Supreme Court along with UBHL, say lawyers.

Another option available for the Diageo is to buy out Srei Infrastructure's 49 lakh shares in United Spirits – worth Rs 1,300 crore as of Friday. Srei had acquired these shares alongwith KFA loans worth Rs 430 crore from ICICI Bank last year. As the public sector banks have second lien on these shares, whatever extra over Rs 430 crore is raised by Srei will go to the public sector banks.

via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNFUJ4cViD-tXyJFM81GsNhXTQhMJQ&url=http://www.business-standard.com/article/companies/diageo-can-raise-stake-via-creeping-acquisition-open-offer-lawyers-113122200561_1.html

Put the internet to work for you.

via Personal Recipe 2910127