A year after Diageo’s open offer to the public shareholders of United Spirits (USL) received poor response and mopped up a mere 58,668 shares, the company rolled out a new tender offer on Tuesday.
The British liquor company is confident of success this time. It believes it is not easy for large institutional shareholders to exit positions at what it calls an attractive price. In an interview with Ajay Sukumaran, chief financial officer at Diageo Deirdre Mahlan says the company believes an increased direct shareholding in USL will give it a certainty of control.
After receiving a poor response to the tender offer last year, what is Diageo’s expectation this time?
We are confident of a success this time because it is a unique liquidity opportunity for investors. Without this offer, it would not be easy for large institutional shareholders to exit their positions at such an attractive price. This is a unique opportunity for investors to encash their stocks at an attractive price.
Over the past year, Diageo had maintained it was satisfied with its over 25% stake in USL as this gives the management and board necessary control of the company. What has changed?
We have always maintained that we want to control the strategic direction of USL. While our 28.78% stake and the shareholding agreement with UBHL give us the control, we believe an increased direct shareholding will give us certainty of control.
After we completed the shareholder agreement on July 4, 2013, we have put a lot of resources behind our integration team and have made a significant progress. While we did all of this for the 28.78% stake, there is a lot more to be done. It’s in the interest of Diageo’s shareholders that we increase Diageo’s interest in USL.
We have made an attractive offer at 22.5% premium to the price at which Diageo last acquired shares on January 31, 2014, and 20% premium to the 60-day volume-weighted average price (VWAP). The current market price (CMP) in part already reflects the market’s view that Diageo’s control of USL will strengthen the company.
In hindsight, do you think the previous offer was a bit too conservative?
The previous tender offer was a part of the total transaction which was announced in November 2012. The value which Diageo ascribed to the USL shares then was appropriate and was at a significant premium to the CMP at that time.
What time frame are