Diageo, the world’s biggest producer of Scotch whisky, has bought a 53.4% stake in Kingfisher Airlines owner and liquor baron Vijay Mallya’s United Spirits for $2bn (£1.3bn), with an option of taking full ownership of the company in future.
The Diageo-United Spirits deal would see Diageo, the owner of brands such as Johnnie Walker whisky and Guinness beer, gain a major foothold in India, which is one of the world’s largest and fastest growing drinks markets.
The complex structure of the Diageo-United Spirits deal would see Diageo make a tender offer to United Spirits shareholders, buy new shares and make a mandatory offer to minority investors.
With the Diageo deal, Vijay Mallya seeks to salvage Kingfisher Airlines Ltd, which has never made a profit. The Kingfisher airlines, whose licence was suspended by directorate of civil aviation recently, has not flown since October start after its employees struck work for not being paid their dues since March.
The Diageo-United Spirits deal would also see Diageo provide cash to help United Spirits reduce its own debt pile, which currently stands at about $1.6bn (£1bn).
With the deal, Diageo’s move to expand its operations in emerging markets, which is seen as a better move for long-term growth, is effected.
In February, Diageo bought Turkish spirits maker Mey Icki for £1.3bn as part of a move to gain access to Turkey’s growing middle class. Diageo is also targetting growing Asian markets such as China and Vietnam.
Shares in United Spirits group rose 3.3% to 1,387 rupees, after touching a high of 1,425 rupees. Diageo share price rose 0.39% to 1,796.