SPIRITS giant Diageo’s fight to win majority control of United Spirits, India’s biggest drinks business, will overshadow interim trading results next week that will again be hit by emerging market volatility.
City analysts say turbulence in markets such as China, Brazil and Nigeria will continue to impact sales – but that the legal battle for United Spirits (USL) has greater strategic importance for the company.
Wyn Ellis, drinks analyst at Numis Securities, said: “India is a really important question for Diageo. The United Spirits deal is strategically significant.
“I am intrigued what they will have to say about it at the results [next Thursday].
“However, even though [group chief executive] Ivan Menezes has said Diageo will fight the recent legal developments, I suspect there will not be enough clarity yet to dispel the uncertainty around the situation.”
Diageo, Scotland’s biggest whisky company, pledged to fight an Indian legal decision just before Christmas that has stalled the transaction giving the British group control of USL.
Indian business magnate Vijay Mallya’s United Breweries holding company sold its shares in USL to Diageo in November 2012 for £1.28 billion, a move that would take the British group’s stake in the spirits subsidiary from 19 per cent to 53.4 per cent. But the deal has become ensnared in a private dispute between Mallya’s Kingfisher Airlines and its creditors, with United Breweries becoming a guarantor for the grounded airline’s debts.
One analyst said: “I think many have been surprised at this legal hurdle emerging so late in the day. By this time the City had hoped Diageo would have been able to put its stamp on USL.”