Diageo pays £53 million to oust Mallya from United Spirits

25 February, 2016

Global drinks giant Diageo has agreed to pay £53 million to Indian entrepreneur Vijay Mallya in return for Mallya’s resignation as chairman of United Spirits.

Mallya sold a 54.8% controlling share in the Indian drinks business to Diageo in 2012 for some £1.8 billion.

Diageo has been in a dispute with Mallya since late April 2015, when he refused to comply with a request from the United Spirits board for him to stand down.

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.

Mallya has consistently denied the accusation.

As part of the settlement announced today, Diageo has withdrawn all claims of personal liability against Mallya which followed from the investigation.

Mallya will receive £28.7 million now with the remainder due in equal instalments over five years, subject to him abiding by the terms of the agreement.

One key clause in the settlement requires Mallya to accept a five-year global non-compete, non-interference, non-solicitation and standstill undertaking.

The non-compete clause excludes the United Kingdom, however.

Mallya is intending to spend more time in England to be close to his children, he said in a statement.

Diageo has agreed to extend Smirnoff's sponsorship of the Force India Formula 1 team for the next five seasons at a cost of around £11 million per season.

Mallya is team principal and part-owner of the team.

Diageo has also agreed to bestow on Mallya the honorary title of founder emeritus - USL, although the title carries no authority, responsibility, rights or benefits.

Under the agreement, Sidhartha Mallya – Mallya’s son – will remain on the board of the USL group company which holds the Royal Challengers Bangalore IPL franchise, while Mallya himself will have the honorary title of chief mentor to the team.

Diageo has agreed not to seek to remove Mallya’s son from the board for at least two years.

In another clause to the settlement, Mallya can acquire up to 13 domestic properties from United Spirits, three of them – in Mumbai, Goa and New Delhi – at a 10% discount to the agreed market rate.

“The agreement we have reached secures my family legacy,” Mallya said.

"I am now the founder emeritus of United Spirits which recognises my contribution in building United Spirits to what it is today and evokes great emotions and a degree of extreme satisfaction.

“I feel both happy and satisfied that I helped create United Spirits as a clear market leader in the industry which contributed immensely to the local state economies.”

United Spirits was formed through a series of mergers in 2006.

Under Mallya’s leadership its sales volume grew from around 3 million cases to over 120 million cases a year.

Mallya has also resigned his position as a non-executive director of USL as well as from the boards of other USL group companies.

Mahendra Kumar Sharma, currently independent non-executive director and chairman of the audit committee at United Spirits, will replace Mallya as chairman.

Ivan Menezes, chief executive of Diageo, said: “India is an exciting growth opportunity, and USL has the management team, strategy and capability to deliver on that opportunity.

“The agreement announced today 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.”

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