USL open-offer case: Sebi gives relief to alcoholic beverages firm Diageo

Alcoholic beverages company Diageo has got relief from market regulator, the Securities and Exchange Board of India (Sebi). In a 23-page order on Thursday, Sebi whole-time member G Mahalingam has said the British spirits maker need not make another open offer in United Spirits (USL), a firm it had acquired from beleaguered liquor baron Vijay Mallya-led United Breweries (UB) Group.

“I find it appropriate to dispose of the allegations laid out in the show cause notice dated May 12, 2017, without any further directions against the noticees thereof,” said Sebi in an order.
In the notice, Sebi had charged USL with takeover code violations for not making an open offer after the ownership status of USL had changed from being an entity jointly controlled by the UB Group and Diageo, to a solely controlled entity of the Diageo group on November 25, 2015.

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In May 2013, Diageo had made an open-offer acquisition of shares in USL through preferential allotment. It later made a voluntary open offer to acquire an additional 26 per cent, which was completed in July 2014.
The bone of contention, however, was the settlement between Diageo and Vijay Mallya, where the latter had agreed to resign as chairman of USL and from the boards of other group companies. Mallya was paid $75 million as part of a sweetheart deal and relieved of any personal liability to Diageo in relation to the finding of inquiry by USL.
In its reply, Diageo explained to Sebi why it had sole control over USL since July 2013 for which it had already made an open offer.
“In my view, in a case where one of the two promoters renounces his control over the target company such that the entire control of the company vests in the hands 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. In this case, the acquisition of control under regulation 4 of the substantial acquisition of shares and takeovers regulations by the noticees has been notified in the first open offer itself. 
Likewise the details of the voting arrangements and veto rights, which were part of the shareholder’s agreement, were also disclosed. Hence, I do not find that the alleged trigger of open offer arising out of cessation of joint control is substantiated,” Mahaligam said.

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