Mumbai/Nagpur: UB Group chairman Vijay Mallya has stepped down as non-executive chairman of United Spirits Ltd (USL), controlled by Diageo Plc after striking a sweetheart deal with the UK firm which agreed to drop all charges of alleged irregularities under his watch, and pay him $75 million over five years in return for getting him to go.
Diageo and one-time billionaire Mallya have been sparring for some time over his exit.
“Having recently turned 60, I have decided to spend more time in England, closer to my children,” Mallya said in a statement.
Diageo said in a statement that the United Spirits board will appoint Mahendra Kumar Sharma, currently independent non-executive director and chairman of the audit committee of United Spirits, as chairman of United Spirits.
“The time has now come for me to move on and end all the publicised allegations and uncertainties about my relationship with Diageo Plc and United Spirits. Accordingly, I am resigning my position with immediate effect,” Mallya said in a surprise statement issued late on Thursday evening. .
He said he is pleased to have been able to agree terms with Diageo and United Spirits.
“The agreement we have reached secures my family legacy,” Mallya said.
Mallya said he has also agreed a global (excluding United Kingdom) five year non-compete arrangement with Diageo.
The ongoing tussle over Mallya’s chairmanship in United Spirits has been brewing for some time. Diageo Plc completed the purchase of a majority stake (54.7%) in USL in July 2014 and has been pushing for Mallya’s removal from chairmanship since then. Mallya, however, has refused to step down.
In April, the board of directors at USL asked Mallya, who holds 4% stake in USL, to resign from the board after an internal probe allegedly found financial irregularities at India’s largest liquor company.
In its 2015 annual report, USL specified that the company has contractual obligations to support Mallya’s interest in the company, as a non-executive director and chairman of the company, subject to certain conditions.
“In the event that Mallya declines to step down, the board resolved to request Diageo to expeditiously review the position in relation to its contractual obligations and authorized sharing with Diageo a copy of the inquiry report and all the materials relating to the company’s inquiry,” USL said in its annual report.
At the annual board meeting of United Breweries in September 2015, Mallya refused to step down as chairman at USL, saying he would continue to chair the company’s AGMs.
“I have agreed a mutual release with both Diageo and United Spirits from claims concerning the alleged irregularities disclosed by USL in April 2015. 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 emotion and a degree of extreme satisfaction having steered United Spirits from a sales volume of just under 3 million cases to over 120 million cases when control was passed to Diageo,” Mallya said in his statement.
Mallya’s resignation comes at a time when State Bank of India and Punjab National Bank have declared him a wilful defaulter because of his inability to pay dues to many as 17 banks, amounting to Rs.7,000 crore. The loans were taken by Kingfisher Airlines.
“I fondly remember, as a young boy, launching McDowell’s, which is the largest selling brand in the industry. I also recall the challenges and personal sacrifices in the tumultuous acquisition of Shaw Wallace and the Royal Challenge brand. 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,” Mallya said
Mallya said “on the sporting front, I will now be the Chief Mentor of the Royal Challengers Bangalore” IPL cricket team.
“I have been passionate about this team since inception and am determined to do whatever I can to win the IPL trophy. I am glad that my son, Sidhartha, will remain as a director (of Royal Challengers Bangalore) as he is equally passionate about RCB,” Mallya said.
Diageo said Thursday’s agreement ends its prior agreement with Mallya regarding his position at USL; brings to an end the uncertainty relating to the governance of USL; and puts in place a five-year global non-compete, non-interference and standstill arrangement with Mallya.
“The financial terms of today’s agreement with Mallya provide for a payment of $75 million (approximately £53 million) to Mallya over a five year period. This payment will be charged to exceptional items in the year ending 30 June 2016,” Diageo said.
As part of the agreement, Diageo has also extended Smirnoff’s sponsorship of the Force India Formula 1 team of which Mallya is team principal and part-owner for the next five seasons.
The cost of this sponsorship is $15 million (approximately £11 million) per season.
“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,” Ivan Menezes, chief executive of Diageo, said.