LONDON -- Diageo (ISE: DGE.L) (NYS: DEO) advanced 34 pence, or 2%, to 1,758 pence in early London trade yesterday morning after confirming it was in discussions with Dr. Vijay Mallya, the Formula One team owner, about purchasing a stake in India's second-largest drinks group.
The FTSE 100 member issued a joint statement with Mallya's United Spirits, saying: "United Spirits Limited and Diageo plc confirm that Diageo plc is in discussion with United Spirits Limited and United Breweries (Holdings) Limited in respect of possible transactions for Diageo plc to acquire an interest in United Spirits Limited. However there is no certainty that these discussions will lead to a transaction."
United Spirits, in which Mallya owns 28%, is best known for producing Whyte & Mackay whisky. Mallya's other business interests include Kingfisher beer, Kingfisher airlines, and the Force India F1 team.
Recent reports had suggested Mallya's talks with Diageo were prompted by him needing to raise cash to support his ailing Kingfisher airline. However, United Spirits does carry a lot of debt itself and Mallya may require Diageo to help support that business.
While United Spirit's sales surged 67% to 92 billion Indian rupees between 2009 and 2012, the expansion was underpinned by heavy capital expenditure and left total borrowings at a hefty 88 billion Indian rupees.
Nevertheless, United Spirit's share price has more than doubled this year on the Bombay stock exchange and values the group at 143 billion Indian rupees (1.65 billion pounds).
Dr Mallya's 28% stake, currently worth 462 million pounds, would be in easy reach of Diageo's resources. The blue chip's annual results in August showed operating profits of 3 billion pounds and 1.4 billion pounds spent on acquisitions.
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