August 08, 2019

SEBI Sends Fresh Notice To Diageo Reiterating Direction To Make Additional Payments To USL’s Minority Shareholders

[ By Bobby Anthony ]


Alcoholic beverages maker Diageo has received a fresh notice from the Securities and Exchange Board of India (SEBI).

Effectively, SEBI has reiterated its earlier direction to Diageo that it must make additional payments to minority shareholders of United Spirits Limited (USL), since an earlier open offer price had not factored in the bank guarantee it had provided to Watson Ltd, which happens to be a company affiliated to Vijay Mallya.

SEBI has taken the position that the bank guarantee provided to Watson Ltd was a financial benefit to USL’s former promoter Vijay Mallya.

According to SEBI’s fresh notice, Diageo had acted against the interest of USL’s minority shareholders by not factoring in the bank guarantee in the acquisition price.

However, Diageo plans to challenge SEBI’s decision before the Securities Appellate Tribunal (SAT), since it if of the opinion that SEBI’s stand is “misconceived”. It has also claimed that the bank guarantee was not part of the original agreement it had entered into with Vijay Mallya.

Diageo has stated that the Watson backstop guarantee arrangements were not part of the price paid or agreed to be paid for any USL shares under the original USL transaction.

It may be recalled that SEBI had had issued a previous notice in June 2016, which had asked Diageo to make additional payments to USL’s minority shareholders.

However, Diageo had moved SAT and on November 1, 2017, SAT directed SEBI to pass a fresh order in the matter after considering Diageo’s reply and giving it a personal hearing.

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