British distiller,
Diageo PLC
(
DEO
) and India's largest spirits company United Spirits Ltd. have
entered into an agreement as per which Diageo will acquire a
53.4% stake in the latter for 1.285 billion pounds ($2.05
billion), in order to venture into the fast growing alcohol
market in India.
Under the agreement, Diageo will buy a 27.4% stake in United
Spirits for INR 1440 per share($26.32 per share), amounting to a
total consideration of 660 million pounds ($1.05 billion), and
make a tender offer for the remaining 26%. Diageo will finance
the acquisition through existing cash and debt. The deal is
expected to close in the first quarter of 2013.
United Spirits is owned by Indian entrepreneur Dr. Vijay
Mallya, who needs sufficient cash in order to bail out his
Kingfisher Airlines out of bankruptcy. Besides financial
strength, the acquisition will help in reducing debt and provide
United Spirits with bright opportunities ahead. Following the
acquisition, Dr. Mallya will continue in his current capacity as
Chairman of United Spirits.
In addition, Diageo management and Dr. Mallya have also signed
a memorandum of understanding (MoU) to form a joint venture to
own the traditional sorghum beer business of South Africa-based
United National Breweries. The 50-50 joint venture will foray
into certain emerging markets of Africa and Asia (excluding
India). Diageo is expected to invest approximately 25 million
pounds ($36 million).
London-based Diageo, whose brands include Johnnie Walker,
Smirnoff and Guinness, has been exploring opportunities to expand
geographically through acquisitions, within its financial
strength. The company has acquired companies with strong
indigenous presence like Mey Içki in Turkey, ShuiJingFang in
China and Halico in Vietnam in fiscal 2012. Also in June, Diageo
bought Cabin Fever Maple Flavored Whiskey in order to tap the
growing markets of flavored whiskey and craft distilling.
Diageo, which competes with
SABMiller PLC
(
SBMRY
), currently carries a Zacks #3 Rank (short term Hold rating). We
have a Neutral recommendation on the stock.
DIAGEO PLC-ADR (DEO): Free Stock Analysis
Report
(SBMRY): ETF Research Reports
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