The world’s largest brewer Diageo got a reprieve from SEBI from making an open offer for United Spirits (USL). Diageo explained to SEBI that it had sole control over USL since July 2013 for which it had already made an open offer and another was not required.

SEBI had alleged in a show cause notice in May 2017 that the status of USL had changed from being an entity jointly controlled by the United Breweries Group and Diageo, to a solely controlled entity of Diageo Group in November, 2015, and hence an open offer by Diageo for USL was required as per the Takeover code.

SEBI had also looked at the $75-million sweetheart deal between USL’s erstwhile promoter and liquor baron Vijay Mallya and Diageo when it issued the show case notice last year. As per his settlement with Diageo, Mallya agreed to resign as chairman of USL and from the board of other group companies for which he was paid $75 million and relieved from personal liability to Diageo with regard to USL.

WTM’s point of view

According to SEBI’s Whole Time Member G Mahalingam, the case where one of the two promoters renounce their control over a target company in a manner that the entire control of the company vests in the hands of the lone promoter who continues, it cannot be said that there is a ‘change in control’, as the public shareholders are familiar with both the promoters being in control of the company and have accepted the same.

In this (USL) case, the acquisition of control under Regulation 4 of the Substantial Acquisition of Shares and Takeovers Regulations by the noticees had been notified in the first open offer itself, SEBI observed. Diageo became a controlling shareholder of USL in May 2013, with 25.02 per cent stake after completion of a ₹3,134.56-crore open offer.

In June 2016, SEBI told Diageo that the company may have to make additional payments to the minority shareholders of USL on the basis of Diageo’s another agreement with Mallya. SEBI’s decision was challenged before SAT with Diageo contesting that the notice was misconceived and wrong in law.

“The details of the voting arrangements and veto rights, which were part of the shareholder’s agreement, were also disclosed. Hence, I do not find that the alleged trigger of open offer arising out of cessation of joint control is substantiated,” Mahaligam said in his order.

Related Topics