World's largest spirits maker Diageo could lose title to over one crore shares of United Spirits Ltd (USL) worth over Rs 3,235 crore or Rs 32.35 billion at current market price in case of 'adverse' ruling on several winding up petitions filed against Vijay Mallya-led United Breweries Holdings Ltd (UBHL) from which it had bought the shares.
Diageo had purchased the shares amounting to 6.98 per cent stake in USL from UBHL as part the $3 billion deal in 2012 through which it had gained majority control in the Indian spirits maker.
The share sale was, however, challenged in the courts by lenders to UBHL, which had defaulted on loans. "...adverse results for Diageo in the proceedings ... could, absent leave or relief in other proceedings, ultimately result in Diageo losing title to the 1,01,41,437 USL shares acquired from UBHL," Diageo informed shareholders in its annual report of 2015. Based on the current share price of USL at Rs 3,193.35 apiece, the 6.98 per cent stake is worth Rs 3,238.51 crore.
Diageo, which is the majority shareholder in USL with a 54.78 per cent stake, however, added that it would continue to be in control of USL even if it were to lose the title of the over one crore shares. "Diageo believes it would remain in control of USL and be able to consolidate USL as a subsidiary regardless of the outcome of this litigation," the company said.
Diageo, under a share purchase agreement (SPA) with UBHL and various other sellers, had acquired 21,767,749 shares (14.98 per cent) in USL for a total consideration of Rs 3,130 crore, including the 1,01,41,437 shares from UBHL.
Prior to the acquisition from UBHL on July 4, 2013, the High Court of Karnataka had granted leave to UBHL to enable the sale to Diageo to take place notwithstanding the continued existence of five winding-up petitions that were pending against UBHL on November 9, 2012, being the date of the SPA.
"Additional winding-up petitions have been brought against UBHL since November 9, 2012, and the Leave Order did not extend to them," Diageo said.
At the time of the completion of the UBHL share sale, the Leave Order remained subject to review on appeal, the company said.
Explaining why the company went ahead with the share purchase despite pending litigations, it said: "... it was considered unlikely that any appeal process in respect of the Leave Order would definitively conclude on a timely basis and, accordingly, Diageo waived the conditionality under the SPA relating to the absence of insolvency proceedings in relation to UBHL and acquired the 10,141,437 USL shares from UBHL at that time."
