Open offer to gain 'certainty of control': Diageo CFO

Diageo's open offer to United Spirits Ltd's (USL) shareholders is targeted at gaining 'certainty of control', Deirdre Mahlan, Chief Financial Officer of Diageo Plc said on Tuesday. Diageo, the world's largest spirits manufacturers, on Tuesday made a voluntary open offer to the shareholers of USL.

"We have always maintained that we want to control the strategic direction of USL. Whilst our 28.78 per cent stake and the shareholding agreement in place with UBHL (United Breweries Holdings Ltd.) gives us control, we believe an increased direct shareholding will give us certainty of control," Mahlan said in an email response to Business Today.

"We have put a lot of resources behind our integration team and have made significant progress. Whilst we have done all of this work for a 28.78 per cent stake, there is also more to be done, and in order to do more it's in the interest of Diageo's shareholders that we increase Diageo's interest in USL," Mahlan further wrote.

Since July 4, 2013, when the acquisition was completed, Diageo nominees in USL's board, including Gilbert Ghostine, Ravi Rajagopal, Paul Walsh and chief financial offier Murali Ananthasubramanian Pathai have been working to facilitate the merger.

Taking developments further, Anand Kripalu, CEO Designate of USL will become the Managing Director and Chief Executive Officer from May 1, 2014, according to a document sent to the stock exchanges earlier today.

"Our investment in USL has meant that we are well positioned to capture the profitable growth opportunities presented by the Indian spirits market where growth is driven by the increasing number of middle class consumers and by premiumisation resulting from increasing wealth levels," Mahlan further wrote in the email. This will enable us to grow across the range of consumer price points as this important emerging market continues to grow and to 'premiumise', she added.

India's spirits market is poised for strong growth, including in beer, where volumes sales are expected to grow at a rate of 10 per cent in the five year period starting 2012, according to a Euromonitor report of September 2013. United Breweries led in 2012 with 53 per cent market share by volume, followed by SABMiller India Ltd with 27 per cent volume share. The third player, Carlsberg India Pvt Ltd, came in at 6 per cent, sharply increasing its share from 2011, but the gap still underlining the dominance of the top two players, the report further said.

United Spirits (USL) jumped 11.58 per cent to Rs 2,853.15 after scaling a record high of Rs 2,940.55 in intraday trade after Diageo Plc, the world's largest distiller, announced a voluntary open-offer to raise its stake in the company. If successful, Diageo will own 54.78 per cent, up from 28.78 per cent it currently holds. Diageo has announced an open offer at Rs 3,030 per share, for which it is prepared to shell Rs 11448.92 crore.