Following certain reservations expressed by the stock market regulator Securities and Exchange Board of India (Sebi), the Competition Commission of India (CCI) too has raised concerns about the structuring of the Rs 11,166-crore Diageo-United Spirits deal. All deals involving mergers and acquisitions must be cleared by the CCI.
Sources said CCI wants more clarity on two clauses in the Diageo-USL deal announced on November 9. These clauses pertain to the sale of additional shares by United Breweries Holding (UBHL) to Diageo in case the preferential allotment by UBHL to Diageo is not successful or is not approved by USL shareholders. Also, a clause which states that UBHL will vote its remaining shareholding in USL to Diageo in case it fails to get a majority stake in USL even after share purchase, preferential allotment and tender offer, sources said.
CCI has also sought information from the companies as per the provisions of Section 20(4) of the Competition Act, 2002.
It wants to know the relative advantage or an adverse effect on competition after the deal is through. CCI will also examine whether the benefits of the acquisition will outweigh the adverse impact of the combination, if any, said a competition law expert.
CCI has also asked the companies to rework the ambiguous parts in their deal and make it more definitive in nature. “The commission may send back the application if the companies are not able to address the concerns. If that happens, the matter will enter 'stage-II'. In that case, CCI can take up to 210 days to examine the matter before clearing the deal,” said a senior competition lawyer who has represented several companies in similar matters before the CCI.
UK-based Diageo and USL had announced a deal on November 9, 2012 under which the former had agreed to acquire up to 53.4% stake in the latter for an aggregate amount of Rs 11,166.6 crore. As part of the deal, Diageo would acquire 27.4% stake in USL for Rs 5,725.4 crore through a combination of share purchase from existing promoters and preferential allotment of shares. In addition, it will also acquire 26% stake for Rs 5,441.07 crore through open offer.
The proposed open offer for an additional 26% stake in USL entails purchase of about 3.8 crore shares at a price of Rs 1,440 per share totalling Rs 5,441 crore, by Relay BV, a wholly-owned subsidiary of Diageo.
The open offer price has emerged as another area of concern as the share price of USL had surged above Rs 1,440-level in the very next trading session after announcement of the deal on November 9. Later, the stock had surged to as high as near Rs 2,100 level and is currently trading at about Rs 1,826.
USL, the country's largest spirits company, is part of Vijay Mallya-led UB Group.