Mallya-USL deal under SEBI lens

Vijay Mallya’s $75-million deal to exit United Spirits has come under the lens of market regulator SEBI.

According to SEBI sources, the contours of the deal are being examined for violations of corporate governance norms and the conditions under which the USL board decided to strike the deal.

If required the regulator could also go into the various agreements done by Vijay Mallya (prior to Diageo’s acquisition of shares from United Breweries) in which USL was a party and which were struck down by shareholders in November 2014, sources said.

Ironically, the company’s filing to the stock exchange on Thursday stated that the deal was to ‘end the uncertainty relating to the company’s governance”.

Proxy advisories hold the view that there is more to the deal than what meets the eye. In a scathing report, JN Gupta, Managing Director, Stakeholders Empowerment Services (SES), questioned the basis of the $75-million payout to Mallya.

In the past, SES said, “Diageo in no uncertain terms had accused Mallya and UB Group of wrong doing. It is a strange case that the accuser is (now) paying the accused compensation. Is this admittance on part of Diageo that all their accusations were absolutely wrong? Or is it a case that Mallya levelled counter allegations against Diageo, which are not in public domain, and Diageo yielded after getting caught on wrong foot...? Shareholders need to know what the truth is.”

SES is of the view that Diageo knew of the corporate governance issues and fund diversions from USL to Mallya’s other group entities. It appears, SES says, that Diageo feared that any case filed against Mallya would “open a can of worms for Diageo making their position untenable and Diageo would be liable for non-disclosure, misrepresentation and wilful concealment of facts from regulators and shareholders.”

Investors, it seems, have little chance for recourse. Shriram Subramanian, MD, InGovern, told BusinessLine that there is no single large institutional investor in USL which can take up the fight for minority investors.

Says Subramanian: “For Diageo, making Mallya leave can be a clean slate for them. While the write-off is big, I don’t think retail investors should crib. Just go out on a Friday night to see how well USL’s products sell. That’s why the company’s stock price didn’t fall despite this announcement,”

United Spirits Ltd gained 2.45 per cent on Friday to close at ₹2,729.85 on the BSE.

Hetal Dalal, COO, Institutional Investor Advisory Services, said that Vijay Mallya’s exit gives USL a clean break from the past. A report said that for the minority shareholders, “Diageo’s deal with Mallya allowing him to walk-away, leaves them short-changed. They can either pursue this with regulatory authorities in India (possibly without the company’s support), or, exult in the clean break from the past and wait for the new owners to deliver.”

But given Diageo’s missteps at each stage, the report added, “shareholders will want to know what the (USL) board was drinking as they staggered through this transaction.”