MUMBAI, Dec 20 (Reuters) - A regional court in India on Friday ordered the annulment of the sale of United Spirits to British spirits group Diageo, dealing a further blow to a transaction beset by complications, though Diageo said it would appeal the decision.
Diageo said the Karnataka High Court, located in southern India, had ordered the cancellation of the sale in response to a petition by creditors of United Breweries Holdings Ltd, which sold its stake in United Spirits to the British firm through a complicated share transaction.
These creditors pursued a legal case in Karnataka seeking to force the sale of United Breweries Holdings, expecting the proceeds could be used to settle their claims.
The ruling from Karnataka High Court was not available, making it hard to discern its wider impact.
Diageo said in a statement it would appeal against the decision once it received it from the court.
The ruling adds another complication to Diageo’s attempt to increase its foothold in India’s growing spirits market, but analysts doubted whether it would torpedo the deal given the prospect of appeals, including to the country’s Supreme Court, and previous approvals by regulatory authorities.
“This court order can cause only minor hiccups in the deal,” said Deven Choksey, managing director at K R Choksey Securities.
Diageo completed its takeover of United Spirits in July, almost eight months after the companies announced the deal because of legal and regulatory difficulties.
At the heart of these difficulties is bankrupt Kingfisher Airlines, part of the wider UB Group controlled by liquor baron Vijay Mallya, an executive known in India as “the king of good times.”
Mallya’s UB Group is the owner of United Brewery Holdings and previously owned United Spirits.
Kingfisher grounded operations owing 60 billion Indian rupees ($966 million) to creditors as of September. United Breweries Holdings was guarantor for some of these loans, and creditors of the bankrupt airline have since sought to recover the loans by trying to stop the Diageo deal.
The claims from creditors attracted close scrutiny from the Competition Commission of India and capital market regulator Securities and Exchange Board of India, before both eventually approved the sale.
A spokesman for UB Group also confirmed the Karnataka court ruling and added it would also consider an appeal to the Supreme Court.