Diageo Announces Public Offer for USL - Analyst Blog

British spirits company Diageo plc DEO has announced a tender offer to its public shareholders for 26% of the stake of India based brewer United Spirits Limited USL. This 26% represents 37.8 billion shares of USL priced at INR 3,030 per share ($50.1 per share).

Diageo has launched the tender offer through Relay B.V., a wholly owned indirect subsidiary of Diageo. The offer will help Diageo to increase its stake to 54.78%.

Per a Nov 2012 agreement, Diageo aims to acquire a 53.4% stake in the latter for £1.285 billion ($2.05 billion) and gain a foothold in the fast-growing alcohol market in India.

Out of this 53.4% Diageo took over 27.4% stake in United Spirits for INR 1,440 per share ($26.32 per share), amounting to a total consideration of £660 million ($1.05 billion).

United Spirits is owned by Indian entrepreneur Dr. Vijay Mallya. It is the largest alcohol company of India and commands a portfolio of more than 140 brands.

In addition, in Jan 2013, Diageo management and Mallya has formed a joint venture to own the traditional sorghum beer business of South Africa-based United National Breweries. The 50-50 joint venture forays into certain emerging markets of Africa and Asia (excluding India).

London-based Diageo carrying a Zacks Rank #3 (Hold), owns brands such as Johnnie Walker, Smirnoff and Guinness and has been exploring opportunities to expand geographically through acquisitions. Diageo has acquired companies with strong indigenous presence like Mey Içki in Turkey, ShuiJingFang in China and Halico in Vietnam in fiscal 2012.

Other stocks in the consumer staples sector worth considering are Supervalu Inc. SVU, Diamond Foods Inc. DMND and Mondelez International Inc. MDLZ. All the stocks carry a Zacks Rank #2 (Buy).

INR 1.00 = $0.02