DIAGEO announced on Wednesday (July 2) it had won majority control of India's United Spirits as the British liquor giant ramps up its presence in the whisky-loving nation, paying $1.9bn (£1.10bn) to nearly double its stake.
Diageo said it had completed the purchase of 26 per cent of United Spirits Ltd (USL) shares from shareholders, lifting its holding in India's largest alcohol company to 54.78 per cent from 28.78 per cent.
“Our announcement today is significant for Diageo. India has now become one of Diageo's largest markets and will be a major contributor to our growth ambitions,” said Diageo chief executive Ivan Menezes.
Diageo paid 114.5 trillion rupees ($1.9bn) to increase its stake, bringing the total paid by the British giant for its majority holding to $3.2bn (£1.86bn).
While Diageo had de facto management control of Bangalore-based United Spirits, analysts said the British company needed majority control to implement its growth strategy for the world's biggest whisky market.
Diageo more than doubled its offer for the shares it did not own to 3,030 rupees per share – a sharp premium on the existing price – from a 2012 bid spurned by many investors as too low.
The rejection had forced the British company to settle for a smaller stake, earlier controlled by tycoon Vijay Mallya who has been battling big debts over the collapse of his Kingfisher Airlines.
“Diageo is doing the right thing (in seeking a majority stake), given the very significant long-term upside for the Indian spirits market,” London-based Citi financial analyst Andrea Pistacchi said recently.
Formal majority control of United Spirits should help ensure faster and smoother delivery of Diageo's strategy, analysts said.
The renewed bid was steered by India-born company veteran Ivan Menezes who has reorganised his management team to focus more on India.
Figures from research house Euromonitor show how key India is to Diageo's calculations. The country already guzzles one half of whisky sold worldwide – a share forecast to rise to 70 per cent by 2017, according to Euromonitor.
India is expected to “become Diageo's number two market after the United States” and has “potential, in the long term, to become our largest market”, Menezes has told analysts.
United Spirits gives Diageo the firm's vast distribution network for its flagship Johnnie Walker, the whisky of choice for India's upper middle classes, and other products.
But most importantly United Spirits gives Diageo entry into the popular lower-priced, domestically-made segment of the whisky market.
India has long been in the sights of Menezes, who aims to source at least 50 per cent of Diageo's sales from emerging markets, up from 42 per cent now, as developed market growth slows.
USL shares finished nearly three per cent higher on Wednesday at 2,486.55 rupees each.
