We maintain our positive call and outperform rating on United Spirits Ltd. In 18 months, Diageo has announced a second open offer at over 2x the initial one (announced in November 2012 at Rs 1,440 a share).
We believe this indicates Diageos confidence in the potential of the USL business as well as its commitment to India as a market.
We do not expect a full acceptance for the offer and believe longer-term investors will wait for the premiumisation theme to play out in USL over the next 18-24 months.
We have earlier highlighted that Diageo would not like to rely on the UB Group stake to have a higher voting share and would eventually increase its stake to 51%.
Diageo has launched an open offer to acquire an additional 26% stake in USL at R3,030 a share, a 17% premium to Tuesdays closing price. The open offer is for the acquisition of 37.79 million shares. This amounts to a total offer size of R11,449 crore.
The current stake of Diageo in United Spirits is 28.78%, which does not include the treasury stock of 2.38%. This implies that a full acceptance of the offer would take Diageo's stake up to 54.78% in the company and voting power to above 65% as the UB Group has to vote in line with Diageo for five years from the initial deal. The open offer is for public shareholders who currently own 59% of United Spirits.
IDFC Institutional Securities