Diageo’s United Spirits deal revives weak Indian M&A outlook

Inbound M&A is down by more than 70% since last year as foreign investors steer clear.
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United Spirits' key brands
<div style="text-align: left;"> United Spirits' key brands </div>

Diageo’s $2 billion bid for a 53% stake in India’s United Spirits last Friday marked a rare piece of good news in what has been a dismal year for Indian M&A.

Including the Diageo deal, inbound Indian M&A has totalled just $8.3 billion during 2012 so far, down 72% from the $29.6 billion raised during the same period last year, according to Dealogic. It is the lowest year-to-date level since 2009, when there was just $5.9 billion of activity.

United Spirits, the leading distiller in India, is controlled by politician Vijay Mallya’s United Breweries group, which owns the Kingfisher beer-and-aviation brand. Mallya will stay on as chairman and will work with Diageo to take advantage of India’s growing demand for premium brands such as Johnnie Walker.

Under the terms of the deal, Diageo has agreed to buy a 27.4% stake in United Spirits at Rs1,440 ($26) a share for a total consideration of Rs57.3 billion, triggering the launch of a mandatory tender offer to the public shareholders of USL. Diageo has therefore also announced that it will launch a tender offer to buy a further 26% of United Spirits’ enlarged share capital for the same price, leaving Diageo with a 53.4% stake at an aggregate cost of roughly $2 billion.

This is about 20 times United Spirits’ earnings for the year ended March 31 2012.

“We will be well positioned to take the growth opportunities presented by a spirits market where growth is driven by the increasing number of middle-class consumers,” said Paul Walsh, Diageo’s chief executive. “[United Spirits’] number one position in local spirits together with our growing international spirits business of leading brands will enable us to grow across the consumer space as India’s increasing number of middle-class consumers look to enjoy premium and prestige local spirits brands as income levels rise.”

Walsh went on to say that the acquisition is part of a strategy to build Diageo’s presence in the world’s faster growing markets and enhance its position as the world’s leading premium drinks company.

“I am very proud of USL and what has been created over the last 30 years to bring this company to its pre-eminent position in India,” said Mallya.

JM Financial acted as lead transaction and financial adviser to Diageo on the transaction, while Bank of America Merrill Lynch acted as joint financial adviser. UBS also provided financial advice to Diageo. Slaughter and May and Platinum Partners acted as legal advisers.

Citi acted as lead financial adviser to United Spirits. Amarchand and Mangaldas & Suresh A Shroff and Herbert Smith Freehills provided legal advice.

Citi is the leading target adviser for India inbound M&A volume with a 32.8% share, according to Dealogic’s 2012 year-to-date rankings. Ambit Corporate Finance ranks second with 31.7% and Deutsche Bank follows with 9.8%.

The UK continues to be the leading acquirer into India in 2012 year-to-date with a 32% market share, followed by the US and Japan with shares of 19% and 18%, respectively.

¬ Haymarket Media Limited. All rights reserved.
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