India: Sebi exempts Diageo from making fresh open offer to USL's shareholders
Markets regulator Sebi on September 6 exempted Diageo Group from making a fresh open offer to the shareholders of United Spirits Ltd (USL), the Economic Times reported.
It was alleged in the show cause notice issued in May last year that the status of USL had changed from being an entity jointly controlled by the UB Group and the Diageo to a solely controlled entity of Diageo Group in November, 2015.
The British spirits maker's group was allegedly required to make an open offer due to this.
The USD 75-million sweetheart deal between its erstwhile promoter Vijay Mallya and new owner Diageo was also taken into account while Sebi issued show cause notice.
In a 23-page order, Sebi Whole Time Member G Mahalingam said it is not appropriate "to direct an open offer against the noticees (Diageo Plc and Relay B V) as proposed in the SCN (show cause notice)".
Relay B V is an indirect wholly-owned subsidiary of Diageo Plc.
"In my view, in a case where one of the two promoters renounces his control over the target company (USL) such that the entire control of the company vests in the hand of the lone promoter who continues, it cannot be said that there is a 'change in control' as the public shareholders are familiar with both the promoters being in control of the company and have accepted the same," Mahalingam added.
In November 2017, the Securities Appellate Tribunal (SAT) had asked the Sebi to expeditiously pass a fresh order in the matter relating to Diageo Plc requiring to make additional payments to the minority shareholders of USL.
Diageo became a controlling shareholder of USL in May 2013, with 25.02 per cent stake after completion of a Rs 3,134.56 crore open offer.
Later in June 2016, the Sebi through a notice told Diageo that the company might have to make additional payments to the minority shareholders of USL on the basis of Diageo's Watson backstop guarantee agreements for Watson Ltd, a company affiliated to Mallya.
Sebi's decision was challenged before the SAT with Diageo contesting that the notice was misconceived and wrong in law.
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