In one of the largest cross-border corporate deals this year, the UK-based Scottish & Newcastle (S&N), the fifth largest brewer in the world, will pick up a 17.5% stake in Vijay Mallya's United Breweries (UBL), owners of the Kingfisher beer brand, through a preferential allotment, in a deal worth Rs 217 crore at Rs 575 per share.
S&N will also make an open offer to Indian shareholders to acquire a further 20% stake under Sebi's takeover code. Its stake could thus go up to 37.5% with the total value of the two transactions rising to Rs 465 crore.
Following the deal, the UB group's holding in UBL will come down to 37.5%. Both S&N and the UB group will have an equal holding in UBL - 37.5 % each if the open offer is fully subscribed. The UB group will retain the chairman's post which is currently held by Vijay Mallya, while S&N can nominate the CFO.
S&N will also invest Rs 247 crore in UBL by way of redeemable preference shares (non-convertible) with a coupon rate of 3%. This is over and above the amount it will shell out for a 17.5% stake and a further 20% stake.
According to the agreement between the two companies, Vijay Mallya will continue as chairman of UBL and will also hold the right to nominate the CEO of the company, while S&N will have the right to nominate the CFO. Both parties will also have the right to nominate two directors each.
S&N had formed a beer joint venture (Millenium Alcobev) with the UB group two years ago. MABL's operations will now be combined with UBL, as a result of which UBL's beer market share will cross 50% of the 85-m case Indian market.
S&N's total investments - planned and invested - including the Rs 177 crore already pumped into MABL and a Rs 50-crore ECB facility to UBL could add up to Rs 939 crore.
UBL was advised by Ambit Corporate Finance, while S&N was advised by DSP Merrill Lynch on this transaction.
The share price of UBL has shot up from about Rs 100 to Rs 500 in a span of just 45 days. The stock has surged on talk of UB forging a deal with a foreign partner. The UB group had also acknowledged that it was considering "unsolicited offers" from a number of multinational brewers.
The total promoter holding of UBL is at 49.88%. Mr Mallya directly owns a 10.78% stake while persons acting in concert including United Breweries (Holdings) hold another 39.10% stake.
Commenting on the agreement, Tony Froggat, chief executive of S&N, said, "The combination of S&N and UBL will strengthen the strong leadership position that UBL holds in a fast-growing market of enormous long-term potential."
Mr Mallya said, "The agreement has achieved a tremendous increase in UBL shareholder value. It also concludes the strategic partnership initiative so that UBL is financially and technically strengthened to further increase its market leadership."
S&N is a leading international brewer with brands like Kronenbourg and John Smith's, and is the sole distributor of Foster's in Europe. It is also the market leader in three of the six beer markets in Europe - Russia, UK and France.
UBL is the No 1 spirits and beer major in India. Kingfisher, its flagship beer brand, has evolved into one of the top ten Indian brands across all segments.
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