By Ruma Dubey
Good times seem to be turning ugly. And Vijay Mallya’s one long party is surely giving him the mother of all hangovers.
The recent battle of turf between United Spirits Ltd (USL)/Diageo and Mallya is turning into a soap opera with each party looking suspicious. On Saturday, at a Board Meeting chaired by Mallya, the USL board asked him to resign with immediate effect as tit had lost all confidence in him.
This sudden revelation of truth to USL Board, notwithstanding the entire Kingfisher fiasco came to light only after PriceWaterHouse Coopers (PwC) sent out its ‘probe’ report on 24th April. At the behest of the USL Board, PwC conducted a probe into its accounts from 2010 to 2013 and its verdict – Rs.1337 crore was diverted from USL to some UB companies, especially Kingfisher Airlines. And it took this report from PwC for USL to conclude that something hanky-panky had happened and Mallya, finally after all these years and various charges of improprieties and legal violations, was not above-board as they naively thought him to be.
Mallya, at is belligerent best that he would fight, take legal recourse. He says that he has not diverted such large amounts of funds and with an interview with the Hindu Businessline stated that the issue was not Rs.2000 crore but Rs.330 crore. He says, “Accounts have been validated by the board, audited by the auditors, approved by the shareholders, filed with the stock exchanges and registrar of companies. Suddenly, three years they wake up and rake up all this.”
Diageo is technically in charge of USL with their 55% stake. So in that context, Mallya with his less than 5% stake does not have the voice. But what one cannot understand now is why did it take Diageo so long to wake up? Right at the peak of the Kingfisher fiasco, they were doing everything possible to takeover USL. Did the British liquor company not conduct a due diligence when they took over the USL in Nov 2012 for a whopping $2.1 billion? It was the biggest M&A of the year. Did they not know at that time that they were entering into a deal with a person whose company had defaulted to the tune of Rs.7000 crore, plunging several banks into crisis mode?
That’s not all. USL is already fighting a battle with the Karnataka High Court, which sought a probe by the Enforcement Directorate (ED) and RBI on alleged diversion of Rs.4000 crore from USL to entities based in British Virgin Islands. Currently the ruling on the same remains status quo but the question here is – was Diageo so blinded by this race to takeover USL and get a foothold in India that it overlooked so many major cracks?
Diageo conducted a due diligence for months and if that did not raise any hackles, what about the fact that immediately in the quarter after the deal was completed, USL kept on delaying its financial results – this was once again because of a loan USL gave to one of Mallya’s company.
Another analyst has pointed out that a proxy firm, Institutional Investor Advisory Services India (IiAS), in Sept’14 had asked shareholders to vote against resolutions for Mallya’s reappointment at USL. At that time, Diageo went all out and supported his reappointment in Oct’14. And this ‘support’ was despite doubts doing the rounds already of improprieties in USL.
So the question is why Diageo has decided to wake up today? Probably because business is not doing too well? No one in the right mind would patronize Mallya but at the same time, Diageo also does not seem to be all above-board. There is no doubt that things on the market front for USL have changed – though the demand is huge given the demographics, Tamil Nadu issuing fresh licenses, Odisha egging on local companies to make alcohol and competition increasing from Chhabria’s ABD and Radico Khaitan, market dynamics have surely changed. At the same time, competition from likes of Pernod Ricard are fast gaining market share. Thus things are sticky for USL and that is also an issue to be considered.
People like Mallya are truly the wrath of this society and its pitiable that banks have to pay a price to clean this dirt and indirectly me and you. Hope other banks speed up and all declare him willful defaulter. Let’s make it big!