United Spirits soars 18%; thumbs-up for Diageo deal

United Spirits spurted 18% after the world's largest spirits company is in the process of acquiring a majority stake in the Vijay Mallya' company.

United Spirits stock was last trading at Rs 1611, up Rs 250 or 18.44% over Friday close. Late last week United Spirits, United Breweries Holdings and Diageo, announced a deal, which will see Diageo initially acquire 27.4 percent stake in United Spirits for Rs 1,440 a share (19.3 percent from UB Holdings and several United Spirits subsidiaries, and preferential allotment of new shares amounting to 10 percent of post-issue enlarged share capital).

Diageo will than have to make an open offer which will ensure that the company acquires a controlling stake in the company.

On completion of the share purchases and in the event that the tender offer were fully subscribed, Diageo will hold 53.4% of the enlarged USL share capital at an aggregate cost of INR 111,665 million (approximately £1,285 million). This represents a 20x multiple of USL's EBITDA for the year ended 31 March 2012 and the transaction would be eps accretive in year 2 and economic profit positive in year 6 assuming a 12 % WACC.

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