New Delhi: Top officials of Diageo and United Spirits, including its chairman Vijay Mallya, are likely to meet this week to discuss regulatory and other issues related to their proposed $2 billion deal. The transaction -- that would see global liquor major Diageo acquiring majority stake in United Spirits Ltd (USL) -- is yet to receive green signal from fair trade regulator CCI, which is believed to have concerns about possible impact of competition in the market once the deal goes through.
Sources said that top officials of Diageo and USL are likely to meet this week in Goa to discuss various issues related to the proposed deal. UB Group Chairman Vijay Mallya is also expected to be present at the meeting. Officials are expected to deliberate on issues related to regulatory compliance, including additional costs, among others, they added.
Depending on the outcome, there could be more meetings in the future, sources said. One of the world's largest spirit companies, USL is part of Mallya-led UB Group, whose aviation venture Kingfisher Airlines is going through turbulent times.
When asked about status of various regulatory approvals and whether the company has asked USL to take care of expenses related to regulations, Diageo said, "We have received Sebi's comments and we are considering them". The company did not provide further details while similar queries sent to USL did not elicit any response.
On January 31, capital market regulator Sebi had cleared an open offer by Diageo for purchase of 26 per cent stake in USL, which is part of the USD 2 billion deal. Sources said Competition Commission would take some more time before deciding on the Diageo-USL transaction and it has also sought more information from Diageo.
A final decision by the Commission is likely in March, they added. "Regarding the deal, the Commission is basically looking at Section 20 (4) of the Competition Act which relates to the impact of a combination to the competition in that relevant market," sources said.
Besides, there are also concerns that the deal could lead to consolidation in the Indian liquor industry in the long term, they said. Section 20 relates to various aspects of a combination in a relevant market, including actual and potential level of competition through imports, extent of barriers to entry and degree of countervailing power.
As part of the deal, Diageo would acquire 27.4 per cent stake for Rs 5,725.4 crore through a combination of share purchase from existing promoters and preferential allotment of shares. In addition, it had offered to acquire an additional 26 per cent stake for Rs 5,441.07 crore through an open offer for public shareholders. Meanwhile, Securities and Exchange Board of India (Sebi) has allowed Diageo to launch an open offer for buying shares in United Spirits after getting all regulatory clearances.
Sebi has also said that UK-based Diageo would have to pay an interest of 10 per cent per annum for the period of delay to the public shareholders tendering their shares in the open offer. Last week, Diageo's manager for the open offer, JM Financial, had said that the revised schedule would be announced in due course after all the regulatory approvals.
The open offer proposal, which was made about three months ago soon after the deal announcement on November 9, was cleared by Sebi after numerous clarifications sought by the regulator. The market regulator was earlier not comfortable with certain provisions of the proposed offer, including those related to preferential allotment of shares, as it feared that the minority shareholders might be at disadvantageous position under the existing terms of the deal. However, some changes have been made to the satisfaction on the regulator as well as the companies to clear the deal.