UB group’s acquisitions to be funded through Trust
The UB Group has decided to fund most of its future acquisitions including the possible takeover of Whyte & Mackay through a trust consisting of treasury stocks.
There are around 17 million treasury stocks deposited in the trust and at an average of Rs 850 per share, which is the current share value, it works out to around Rs 1,445 crore. "You could either call it our war chest or the amount of money we have at our disposal," UB Group’s President and Chief Financial Officer, Mr Ravi Nedungadi, told Business Line.
He, however, added that several more options are available with the group to raise money whenever acquisitions are made. "What it does is that it gives us tremendous amount of leverage as well as confidence," he said.
Mr Nedungadi said that in the case of picking up a stake in a company or complete acquisition, the trust would shed some of the stock to raise money. This will eliminate any interest costs while the capital remains fixed. "We will however be limited by the value of the current stocks," he admitted.
The trust was formed as part of the merger of various entities to form United Spirits. Traditionally, whenever two companies are merged, the capital stands cancelled but the group instead of cancelling the shares of merged entities, allotted the shares to a trust, which also benefits the company.
The group had earlier decided to keep 15 per cent of the capital as treasury stocks but ended up keeping 17 per cent.
The group is looking at several new initiatives to keep ahead of the competition as foreign liquor majors line up to enter India. The group plans to consolidate its administrative operations under UB Holdings and charge transaction processing fee to its companies like McDowell’s and United Breweries for using its services.
Such a system will free key companies in the group from spending time and resources on unrelated activities while at the same time help them stay focused on their main businesses. This will also ensure adequate cash flow for UB Holdings. The centralised shared services system can also be thrown open to companies like Scottish & Newcastle, which is a part owner of United Breweries, at a later date, an official with the group said.
Source:
