-- In talks with United Spirits, parent United Breweries
Holdings
-- No certainty that these discussions will lead to a
transaction
-- Stake sale plan part of UB Group's efforts to raise funds for
Kingfisher Airlines
(Recasts; adds background)
By Rumman Ahmed, Dhanya Ann Thoppil and Simon Zekaria
BANGALORE--Diageo PLC (DGE.LN) said Tuesday it is in talks with
United Spirits Ltd. (532432.BY) and its parent United Breweries
Holdings Ltd. (507458.BY) to acquire a stake in the Indian spirits
group, as the U.K.-based liquor giant continues its aggressive
drive to expand its footprint in lucrative fast-growing emerging
markets.
However, there is no certainty that these discussions will lead
to a deal, Diageo and United Spirits said in a joint statement.
They declined to comment on the size of the stake that Diageo is
looking to buy.
The stake sale plan is part of the UB Group's efforts to
overcome the financial crisis at Kingfisher Airlines Ltd.
(532747.BY), which owes millions of dollars to lenders,
aircraft-leasing companies, suppliers, staff and in taxes to the
government.
United Breweries Holdings is the group holding company for the
UB Group, which includes United Spirits, Kingfisher Airlines and
beer-maker United Breweries Ltd. (532478.BY).
Chairman Vijay Mallya and United Spirits' founder-group
companies, including United Breweries Holdings and Kingfisher
Finvest India Ltd., together hold a 27.78% stake in United Spirits,
which owns brands like McDowell's No.1 whisky, Romanov vodka and
Four Seasons wines.
The news confirms recent reports that the London-based maker of
Johnnie Walker Scotch whisky and Smirnoff vodka was in advanced
talks with United Spirits.
The companies are reported to have been in talks for several
years now -- with new bits of information helping UB Group company
shares every now and then. But no deal has been struck so far.
The stake held by the founder and founder groups in United
Spirits is worth 38.37 billion rupees ($717 million) based on
Monday's closing share price of 1,054 rupees on the Bombay Stock
Exchange.
As at March 31, Kingfisher had 56.89 billion rupees in long-term
borrowings, and 23.35 billion rupees in short-term loans.
Earlier this month, a local media report cited unnamed sources
as saying that Diageo may pay up to 30 billion rupees for a 27%
stake in United Spirits.
United Spirits' shares jumped on the news of the talks Tuesday.
At 0730 GMT, they were up 3.7% at 1,092.70 rupees on the Bombay
Stock Exchange, where the benchmark Sensitive Index was up
0.3%.
Diageo last month recorded a rise in profit -- driven by growth
in emerging markets as well as a U.S. recovery -- and raised its
dividend.
The company has been on the acquisition trail for quite a while
now.
It is in close talks with Mexico's Beckmann family over a
reported $3 billion deal for tequila producer Jose Cuervo. In
recent years, the company has made smaller acquisitions in Turkey,
China and Brazil across the local raki, baijiu and cachaca
categories, respectively, as it works toward generating half of its
revenue in developing economies by 2015, up from almost 40%
now.
With growth opportunities in Europe scarce as recession and
austerity force drinkers to spend less, manufacturers of spirits
are turning to the developing world, where rising incomes and
growing adult populations are fueling demand.
Acquisitions offer the companies a gateway to the markets at a
relatively low cost, as well as an opportunity to increase the flow
of imports of local brands to the West.
Write to Rumman Ahmed at rumman.ahmed@dowjones.com and Dhanya
Ann Thoppil at dhanya.thoppil@dowjones.com
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