Diageo to challenge Indian court ruling voiding USL sale

NEW DELHI - British drinks giant Diageo said Saturday it will challenge an Indian court decision annulling its purchase of some shares of United Spirits that threatens its control of India's biggest liquor firm.

Friday's ruling came five months after Diageo announced it sealed a 52.4-billion rupee (S$1.07 billion) deal to aquire a quarter of United Spirits' shares which made it the Indian company's controlling shareholder.

"We do not believe there are any grounds for declaring the sale of shares in United Spirits Ltd purchased by Diageo on July 4 from United Breweries Holdings Ltd (UBHL) as void," Diageo said in a statement.

"Once we receive the full written (court) order, we will review the detail of that order. We confirm we intend to appeal the matter further," Diageo added.

Through its purchase of United Spirits, London-based Diageo has been seeking a dominant presence in the world's biggest whisky market.

At the root of the case is debt-laden Kingfisher Airlines, part of the corporate empire of flamboyant Indian tycoon Vijay Mallya, that owes tens of millions of dollars to creditors.

The Karnataka High Court was acting on a plea filed by creditors of United Breweries Holdings Ltd (UBHL), the holding company of Mallya's UB group, that sold a seven per cent stake in United Spirits to Diageo.

UBHL had given guarantees worth millions of dollars to Kingfisher Airlines' lenders.

Creditors of the airline have been chasing the return of their money by seeking to derail the Diageo deal. They want to force the sale of UBHL and take the proceeds to settle their claims.

Friday's ruling overturned an earlier judgement giving conditional approval to UBHL's plan to sell its United Spirits shares to Diageo.

Diageo had initially intended to buy a majority stake in United Spirits but an open offer for shares fell flat and the British drinks maker had to settle for control of the company.

Diageo announced last month it held 26.37 per cent of United Spirits.

The court ruling would cut Diageo's stake in United Spirits to 19.39 per cent.

If upheld, the verdict could also reduce Diageo's stake in United Spirits to minority status.

This would make it tougher for the British drinks company to manage the Indian firm and implement big significant decisions.

Diageo, which has been expanding aggressively in emerging markets, sells various popular brands, including Smirnoff Vodka and Johnnie Walker whiskey.

United Spirits Ltd, or USL, is India's leading spirits maker, marketing such brands as Bagpiper, Antiquity and Royal Challenge.

Analysts had always said the United Spirits' sale to Diageo could face risks from creditors of Kingfisher Airlines seeking compensation for their losses.