Diageo closes in on United Spirits deal

Diageo, which has long struggled to boost its position in India, had engaged in serious talks with Mr Mallya to buy United Spirits in 2009

Story highlights

  • Analysts say the deal between Diageo and United Spirits could be valued at more than $2bn
  • The acquisition will give Diageo, the world's largest whisky distiller, access to United Spirits' unrivalled distribution network

Diageo is close to a takeover deal for Indian liquor baron Vijay Mallya's United Spirits, the culmination of more than three years of painful on-again, off-again negotiations over India's biggest drinks company by market share.

The deal, which is expected to give Diageo a controlling stake of the Indian spirits group while leaving Mr Mallya as chairman, could be announced as early as Friday, according to people close to the deal.

If it goes ahead, the acquisition will give Diageo, the world's largest whisky distiller, access to United Spirits' unrivalled distribution network to boost its position in India, which is the world's largest consumer of whisky by volume.

Analysts say the deal could be valued at more than $2bn, and will probably see Mr Mallya relinquish some of his own personal 28 per cent equity in United Spirits, which is partly owned through a private company.

Diageo, which has long struggled to boost its position in India, had engaged in serious talks with Mr Mallya to buy United Spirits in 2009, when the Indian group's balance sheet was under pressure from its $857m acquisition of Whyte & Mackay, and its share price plummeted in the global financial crisis. But the talks eventually broke down over the valuation of the company.

"They thought they could take full advantage of our need for cash at that time," Mr Mallya told the Financial Times in an interview in early 2011, after the talks collapsed. "That was something I was not going to allow. I know the value of this business, and there is nobody in the world who is going to get in cheap."

But the past two years have been very hard on Mr Mallya. His airline, Kingfisher, has been grounded since October 1, when staff who had not been paid for seven months refused to work. The carrier's licence has also been suspended.

Authorities have warned that unless Mr Mallya can come up with a credible plan to revive the airline in the next few weeks -- which would require a huge infusion of new equity -- its licence will be permanently revoked.

In Mumbai, shares in United Spirits rose as much as 2 per cent to Rs1,370, while in London, Diageo inched higher by 0.14 per cent to £17.91p.

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