Following the successful close of its £1.1 billion tender offer on June 19, 2014, Diageo secured a 54.7 percent stake in United Spirits Limited (USL), for which it paid a total of £1.85 billion.
The acquisition cost was partly offset by lowering USL’s debt through the £430 million proceeds from the sale of Whyte & Mackay to Emperador of the Philippines, a transaction mandated by the UK competition authorities.
Diageo had offered to buy around 38 billion shares at Rs. 3,030 per share, representing an 18 percent premium to USL’s market price on the day the offer was announced in mid-April 2014.
The offer drew strong investor interest, with reports from India indicating heavy oversubscription just before the tender closed, as USL’s market price never matched the offer price.
This marked a sharp turnaround from Diageo’s earlier bid in May 2013, when it attempted to acquire a 53.4 percent stake in USL but secured only 0.4 percent of shares as the offer was priced below market value.
However, through an irrevocable four-year agreement signed in November 2012 with USL chairman Vijay Mallya and his associates, Diageo had already obtained effective boardroom control and appointed the company’s senior management. With the June 2014 tender offer, Diageo achieved full control and a majority shareholding in USL, valuing the acquisition at nearly 39 times USL’s annual EBITDA.
More recently, on 28th February 2025, Diageo further increased its stake by acquiring 50,75,000 shares (approximately 0.70% shareholding) at Rs. 693.25 per share on the National Stock Exchange, bringing its total controlling interest in USL to 55.9%.
Mallya’s Stake Sale: What Triggered It?
Vijay Mallya’s decision to sell United Spirits Limited (USL) to Diageo in 2012 was driven largely by a deepening financial crisis. By that time, Mallya’s Kingfisher Airlines had collapsed under the weight of massive debt and continuous losses, leaving the UB Group heavily leveraged and desperate for liquidity. United Spirits, the group’s crown jewel, remained profitable and valuable, making it the only viable asset to monetize. The sale offered Mallya an opportunity to raise funds, reduce debt, and bring in a credible global partner to stabilize his business empire.
For Diageo, the world’s largest spirits company, the deal was a strategic entry into one of the fastest-growing liquor markets in the world. India offered huge volume potential but limited premium penetration, and United Spirits provided Diageo with an extensive distribution network and a strong portfolio of local brands. What began as a partnership for growth, however, soon evolved into a full takeover as governance issues and fund diversion allegations emerged against Mallya. Eventually, Diageo gained management control, and Mallya was forced to exit, marking the end of his reign over India’s largest liquor empire.
Diageo’s Gateway to India’s Premium Liquor Space
The acquisition gave Diageo access to one of the world’s most dynamic whisky markets. In 2013, Indians collectively consumed 1.5 billion litres of whisky, and through USL’s brands, including Bagpiper and McDowell’s No.1, Diageo gained access to a company controlling about 40% of India’s spirits market by volume. This provided a strong foundation for expanding its portfolio and introducing premium offerings in the Indian market.
Historically, United Spirits’ portfolio was dominated by brands like McDowell’s No.1, Bagpiper, and Director’s Special, which catered to price-sensitive consumers. Diageo initiated a sweeping premiumisation strategy, rebranding McDowell’s as an aspirational label, introducing luxury Scotch whiskies such as Johnnie Walker and Black Dog, and discontinuing or selling over 30 low-margin brands. Diageo capitalised on rising disposable incomes, urbanisation, and a growing preference for premium experiences among young professionals.
Today, United Spirits stands as one of India’s leading players in the alcoholic beverages industry, backed by strong brand equity, a diverse product portfolio spanning multiple categories and price segments, and a wide nationwide presence. USL’s extensive distribution network covers more than 70,000 outlets across India, supported by nine owned manufacturing facilities spread across eight states, along with several third-party units that produce alcoholic beverages for the company.
The company enjoys high brand recognition across all market segments, popular, prestige, premium, and luxury, offering a comprehensive range of products catering to varied consumer preferences. USL has seven brands that each sell over a million cases annually, including one flagship brand with sales exceeding 50 million cases. Its portfolio features renowned global names such as Johnnie Walker, Baileys, and Smirnoff, complemented by strong local labels and premium offerings. Additionally, USL has expanded into the craft segment through brands like Godawan.
Financial Transformation: From Loss-Making to Market Leadership
United Spirits’ financial journey over the past decade underscores the sweeping transformation under Diageo’s stewardship. In FY2014, the company was burdened with steep losses and high leverage, reporting sales of Rs. 10,508 crore against total expenses of Rs. 13,876 crore. The operating loss stood at Rs. 3,368 crore, translating into a negative operating margin of 32 percent. Interest costs of Rs. 1,323 crore further deepened the strain, leading to a pre-tax loss of Rs. 4,213 crore and a net loss of Rs. 4,489 crore. Earnings per share were negative at Rs. 61.78.
A decade later, the picture has changed dramatically. By FY2025, sales had grown to Rs. 12,069 crore, while expenses were pruned to Rs. 9,833 crore, resulting in an operating profit of Rs. 2,236 crore and a significantly improved operating profit margin of 19 percent. Interest expenses fell sharply to Rs. 89 crore, reflecting massive deleveraging and financial discipline. Profit before tax stood at Rs. 2,135 crore and net profit at Rs. 1,582 crore, translating into a positive EPS of Rs. 21.75, marking a full turnaround from the losses of 2014.
The balance sheet reflects an equally strong recovery. Total debt declined from Rs. 8,307 crore in FY2014 to just Rs. 480 crore by March 2025, highlighting Diageo’s focus on financial restructuring and prudent capital allocation. Cash and cash equivalents, which had dipped to a negative Rs. 6 crore in FY2016, recovered to Rs. 207 crore in FY2025, further strengthening liquidity.
Conclusion
Diageo’s acquisition of United Spirits marked a turning point in India’s liquor industry, transforming a debt-laden company into a financially robust market leader. Over the past decade, Diageo successfully leveraged USL’s distribution strength and local brand equity to capture India’s fast-growing premium spirits market. By focusing on portfolio premiumisation, operational efficiency, and governance reforms, the company redefined consumer perception of Indian-made spirits, positioning United Spirits as a key pillar in Diageo’s global growth strategy.
-Manan Gangwar
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