Diageo deal opens route to growing Indian market

  • @ArmitageJim

Diageo's new chief executive, less than a week into the job, was yesterday toasting the drinks giant's success in taking a controlling stake in the Indian tycoon Vijay Mallya's United Spirits group.

The transaction came after a rocky process that could have fallen at the final hurdle.

Mr Mallya, who owns the Force India Formula One racing team, has sold Diageo a near-15 per cent chunk in the business for $521m (£346m), giving it a total of just over a quarter of the business. When other agreements with Mr Mallya are taken into account, that means the British group – the world's biggest spirits maker – gains control.

The deal makes Diageo a major force in the world's biggest whiskey market, giving it an outlet to funnel through large quantities of its global "powerbrand", Johnnie Walker.

While Mr Menezes raised a glass to the deal, it was the brainchild of his predecessor, Paul Walsh, who was celebrated for his canny purchases and his refusal to be drawn into headline-grabbing big brand deals.

Mr Walsh had tried to persuade Mr Mallya of the merits of yesterday's deal in 2009, but the pair could not agree a price.

Shares in Diageo rose nearly 4 per cent on what was a strong day for most FTSE 100 stocks, gaining 70p to 1967.50p.

Analysts said there had been risks to the deal's completion due to the unorthodox nature of Mr Mallya's stake sale. Mr Mallya had pledged them as collateral for his loss-making Kingfisher Airlines. A further 2.4 per cent of his drinks company also out as collateral could be sold to Diageo later on if they are freed up.

Mr Menezes said: 'Through this acquisition we have transformed Diageo's position in India, a market which is one of the biggest growth opportunities in our industry. India will become one of Diageo's largest markets and with its increasing number of middle-class consumers looking for premium and prestige local spirits brands as income levels rise it will also become a major contributor to our growth ambitions.'

A previous attempt by Diageo to secure control had failed when shareholders declined its open offer for shares.

Mr Mallya will continue as chairman of United Spirits, which makes Bagpiper whiskey. Ashok Capoor will continue as chief executive.

Mr Menezes will now pursue the possibility of extending the business into other fast-growing markets in Africa and Asia with another joint venture.