Mallya quits USL in $75 mn deal with Diageo

Diageo has also agreed to give Siddharth Mallya a seat on the board of the USL group company that holds the Royal Challengers Bangalore IPL franchise.

‘In the event Dr. Mallya declines to step down, the Board also resolved that it would recommend to the shareholders of the Company, the removal of Dr. Mallya as a director and as the Chairman of the Board’.

Mallya’s exit from the board of United Spirits ended a long-drawn tussle between him and the majority owner, UK’s Diageo, following allegations of irregularities on loans given to UB Group companies.

The Indian businessman, who was chairman of United Spirits Limited (USL), a subsidiary of the Scottish-based company, had been under intense pressure to resign for nearly a year after auditors raised allegations of “impropriety and legal violations” at USL. “The reputation of the company (USL) has sought of gone up a notch now, with Mallya moving out”, said Shriram Subramanian, MD, of independent proxy advisory and governance research firm InGovern.

“Diageo had already taken operational control and now they are making a clean break from the past”.

These agreements were entered into prior to Diageo’s acquisition of shares of the company from United Breweries (Holdings) (UBHL) on 4 July 2013. Then, there were receivables of up to Rs 600 crore from third-party bottlers and distributors. So (for) the matter to suddenly surface now is a surprise.

These include services agreement with Kingfisher Finvest, advertising agreement with vehicle racing team FORCE INDIA (under Watson Limited), sponsorship agreement with United Mohun Bagan Football Team among others.

An internal investigation at Diageo reported that Mallya had improperly used funds from United Spirits to help support other parts of his business empire, most notably Kingfisher Airlines, which has since ceased trading.

He has also been declared a “wilful defaulter” by some banks that loaned money to his now-grounded Kingfisher Airlines.

“The agreement is in the best interests of both Diageo and USL and allows USL to build on its strong platform in one of the biggest spirits markets in the world”, Diageo chief executive Ivan Menezes said in a statement in Bengaluru.

He added: “On the sporting front, I will now be the Chief Mentor of the Royal Challengers Bangalore” IPL cricket team.

His disassociation with United Spirits marks the end of an era for Mallya. Mallya has a 32.2 percent stake in United Breweries.

Diageo has now agreed that he has no personal liability for the findings of the inquiry.

The firm, which owns malt whiskies Dalmore, Jura, Tamnavulin and Fetercairn and the liqueur Glayva, was sold to Philippine firm Emperador Inc for £430m.

United Spirits is also in the process of selling the French wine firm.

In a statement, Diageo said Mallya agreed to step down and in turn, the company will pay him $75 million (over Rs 516 crore).

Previously he was also forced to bring Saroj Poddar’s Adventz Group as a white knight to fend off a hostile takeover bid for public listed Mangalore Chemicals & Fertilizers.