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Dec
12

Will Diageo revise United Spirits open offer price ?

Diageo open offer for buying 26% equity stake from public shareholders will open on January 7 and close on January 18,2013. Open offer price is Rs. 1440 per share. Now the big question is who will tender shares in this open offer ? Given the fact that current share price is ruling at Rs 1934 (NSE Friday closing price), any sane individual will not tender shares (Unless share price drops drastically in next 2 weeks). Will World’s largest liquor producer increase its open offer price from 1440 ? As per Diageo management comments in analyst con-call, company will not raise open offer price. For now, Diageo is comfortable with its stake of 27.4 % in United Spirits after 10%  preferential allotment on expanded equity. But it goes without saying that Diageo will continue to look at creeping acquisition route in case of open offer failure. May be for now they are comfortable with 27.4% equity in USL, but for how long ?

Given all these factors USL will not rise much from current levels but will not fall much also. I have sold January series OTM calls of USL. One key risk in selling USL calls is Kingfisher Airlines-Etihad deal. In case this deal happens, it will lead to short-term rise in USL stock price. On the other hand there were news report that Government of India is planning sin tax on Alcohol & Tobacco (http://articles.timesofindia.indiatimes.com/2012-12-22/india/35968481_1_sin-tax-tobacco-people-in-india-drink). Decision on sin tax will be taken in 27th December National Development Council (NDC) meeting.  In case this tax is levied, it will put short-term pressure on USL stock.

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