Diageo is in trouble as India's market regulator Sebi is mulling to ask the British liquor giant to make additional payments to minority shareholders of United Spirits. The company acquired shares of the Indian business under an open offer in 2013 to compensate them for preferential treatment.
Sources said Sebi prima facie was of the view that the interest of minority investors was compromised because of non-disclosure of certain deals, including some loan guarantees that Diageo had entered into with Vijay Mallya while acquiring USL. Takeover norms require the acquirer to make an open offer to purchase 26 per cent from minority shareholders of a listed company at a price at least on par with what is paid to majority shareholders or promoters.
The notice came after a disclosure revealed that Diageo Holdings Netherlands had issued a conditional backstop guarantee to Standard Chartered Bank. In a regulatory filing, Diageo said, "The guarantee was in respect of the liabilities of Watson Ltd, a company affiliated with Vijay Mallya, under a $135-million facility from Standard Chartered."It said that if any net liability was incurred by Diageo on account of the Watson backstop guarantee, it would be considered to be part of the price aid for the acquisition of USL.
In this case, Sebi informed the company that, additional equivalent payments would be required to be made to those shareholders who tendered in the open offer. Diageo said it "is clear that the Watson backstop guarantee arrangements were not part of the price paid or agreed to be paid for any USL shares under the original USL transaction and, therefore, believes the decision in the Sebi notice to be misconceived and wrong in law and it is taking steps to appeal it."
