Karnataka HC annulls United Spirits-Diageo stake deal: Key facts

Kingfisher Airlines is proving to be a millstone around Vijay Mallya’s neck.

The Karnataka High Court on Friday ordered the annulment of the sale of United Spirits to British spirits group Diageo. The order was in response to a winding up petition filed by creditors to United Breweries Holdings, after Kingfisher Airlines defaulted on payments.

The Rs 2400 crore United Spirits-Diageo stake deal was key to cutting down Vijay Mallya’s debt burden. Ironically, the deal itself has now been annulled by the court.

Here are all the facts you need to know about the deal:

* In Novemebr 2012, Diageo signed an agreement to buy 53.4 percent stake in United Spirits in a complex deal. The total deal value was estiamted at Rs 11,166 crore. As much as 26 percent stake was to be acquired through an open offer. Of the balance 27.4 percent, 19.3 percent was to be acquired from United Breweries Holdings and others. The balance 8.1 percent was to be preferential allotment of shares.

[caption id=“attachment_1300361” align=“alignleft” width=“380”] Time to say goodbye? Reuters image[/caption]

* As against the agreed upon 53.4 percent, Diageo had managed to get only 26.37 percent stake in United Spirits. The company was able to get only about 0.04 percent stake as against targeted 26 percent in the open offer. Last month, Diageo bought about 19 lakh shares, or about 1.35 percent stake, of United Spirits through open market purchases, thus taking the total stake to 26.37 percent.

* UBHL had sold 6.97 percent of its United Spirits stake to Diageo. With the court annulling the UBHL’s deal with Diageo, the total stake Diageo holds in United Spirits falls to 19.4 percent, according to a report in the Indian Express.

* The order is a further blow to a transaction beset by complications. It took eight long months for Diageo to complete its takeover of United Spirits in July, because of legal and regulatory difficulties.

* Kingfisher Airlines has been grounded after it accumualted huge debt. The company owes about Rs 6,000 crore to creditors as of September.

* United Breweries Holdings was guarantor for some of these loans. Kingfisher creditors are trying to recover the loans by trying to stop the United Spirits-Diageo stake deal deal.

* The Competition Commission of India and capital market regulator Securities and Exchange Board of India had closely scrutinised the deal becasue of the complexities and controversisies involved.

* Among creditors who filed the petition are BNP Paribas, Rolls Royce and Partners Finance, RRPF Engine Leasing and IAE International Aero Engines.

* Both Diageo and Vijay Mallya have said they will appeal against the court order.

* Analysts, however, do not see any major adverse impact of the order on the stake deal.

With inputs from Reuters