Open offer aimed at better strategic control, says Diageo CFO

The open offer being made by Diageo to shareholders of United Spirits to acquire 26 per cent of its shares is intended to give it greater control over the strategic direction of the business for the long term, said Diageo’s CFO and Executive Director Deirdre Mahlan.

Diageo already controls 29 per cent of USL’s shareholding. The open offer, if successful, will give Diageo a higher direct ownership in the business.

“It will give us confidence that we have a guaranteed control over a longer period of time,” Mahlan said.

Speaking about the business, she said Diageo has invested significant management time and resources in the Indian market, where it sees significant opportunity by virtue of its favourable demographics and rising middle-class.

Mahlan said: “As per capita income grows, all of our experience in emerging markets suggests that people will continue to ‘premiumise’ and premium brands will grow disproportionately faster. From a strategic point of view, it sits nicely into how we look at premium branding. For instance, western style whisky is a substantial business and is aspirational for the population.”

Mahlan said funding of the ₹11,448-crore open offer will be done through a combination of Diageo’s cash-flow and debt. She said the company had sufficient capacity to borrow. She added, “We will fund it through the capital market – bonds or commercial paper. We are not going to borrow from banks. We are not going to raise equity.”

Asked if, in retrospect, the first open offer made two years ago at ₹1,440 per share could have been bigger, Mahlan said: “I don’t think that would have likely been successful in that environment. In any case, there is no point in looking at what happened in the past. It is pointless to speculate. We have the outcome. We think there is still value in the business at the price we are offering today.”

Mahlan said USL would continue as a subsidiary of Diageo after the open offer. “We have no intention of delisting it,” she said.

Asked about the status of Vijay Mallya as Executive Chairman of United Spirits, after the open offer, she said: “There is no change. This open offer will have no impact on the existing agreements with United Breweries Holdings Ltd.”