United Spirits will soon become a Diageo company, the Indian arm of the world's largest spirits company.
The acquisition (through a combination of stake sale, preferential allotment and open offer), we have been told, will be good for United Spirits' shareholders: Diageo, with its international expertise, will bring in top-end brands, cut expenditure and drive up profits.
Vijay Mallya will become a minority shareholder with a 14.9 per cent stake.
For the time being, he will remain the chairman of the company. But it is uncertain how long he will remain in this position.
Experience tells us that multinational corporations retain the Indian management for some time after acquisition, to manage the transition and to send the signal to the employees that their jobs are safe, but take full control soon.
That's actually not unreasonable to expect.
If somebody has paid big money to buy an Indian company, why shouldn't it get a free hand to run the company?
And Diageo will spend $2.1 billion to acquire a little over 53 per cent of United Spirits.
Normally, such acquisition agreements have non-compete riders: the seller agrees not to start a similar venture for a specified number of years.
It is usually three years, though we don't know if such a clause has been inserted in Mallya's deal with Diageo. The message is that he could soon be out of the spirits business.
Text: Bhupesh Bhandari, Business Standard
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