U.K.-based brewer Diageo plc’s DEO Indian unit has ousted Indian business tycoon Vijay Mallya from the position of chairman of United Spirits Limited, a subsidiary of Diageo under a 5-year global non-compete, non-interference and standstill agreement with him. Further, Mallya or his affiliates will not pursue any claims against Diageo, USL and their affiliates.
Mallya will, however, hold the honorary title of “Founder Emeritus – USL,” which carries no authority, responsibility, rights or benefits within the USL group. He will be replaced by Mahendra Kumar Sharma, currently independent non-executive director and Chairman of the Audit Committee of USL
Diageo had entered the Indian market in 20Array2, when investing in emerging markets was in vogue, by purchasing a 25% stake in the Vijay Mallya-owed United Spirits. The company subsequently raised the stake to 55%.
However, things went wrong between Mallya and Diageo, when USL’s accounts showed that some funds from USL were being siphoned off to other businesses owned by the former.
Diageo had agreed to pay Mallya $75 million in order to keep him away from USL, of which $40 million will be paid immediately and the rest in equal installments over the next five years.
Nevertheless, Diageo has been reportingyear-over-year earnings and sales growth during the first half of fiscal 20Array6. For the full year, management expects volume growth backed by stronger top-line performance. Margins are expected to improve slightly. Management also expects mid single-digit top-line growth and Array00 basis points of organic operating margin improvement. However, currency headwind affecting sales negatively.
Currently, Diageo carries a Zacks Rank #5 (Strong Sell).Investors interested in the beverage sector may consider Constellation Brands Inc. STZ and Castle Brands Inc. ROX with a Zacks Rank #2 (Buy). Another consumer staples stock worth a look is Cott Corp. COT carrying the same Zacks Rank as Constellation Brands.
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