Vijay Mallya quits royal challenge, hopes to revive spirits in UK

Bengaluru, Feb 25: Troubled tycoon Vijay Mallya on Thursday resigned as the chairman of United Spirits (USL), the country's largest liquor company founded by his late father Vittal Mallya, almost a year after its board had asked him to step down, citing certain inappropriate dealings which occurred on his watch. Former Hindustan Unilever veteran M K Sharma has been appointed as the new non-executive chairman of USL, now controlled by London-based Diageo Plc.

"The time has now come for me to move on and end all the publicised allegations and uncertainties about my relationship with Diageo and United Spirits Limited," Mallya said. "I am pleased to have been able to agree terms with Diageo and United Spirits Limited. The agreement we have reached secures my family legacy," he added. Vittal Mallya had set up USL soon after India's Independence. Mallya said he has decided to spend more time in England with his children, including eldest son Siddharth Mallya, who is pursuing studies in London. Mallya had earlier told TOI that he was relinquishing control of his group companies as there was no family succession plan. His son, who briefly dabbled in business, had then relocated to Los Angeles to pursue an acting career.

Mallya's exit is a sordid story of a flamboyant industrialist walking away from his flagship as a fallout of the disastrous foray into aviation—the grounded Kingfisher Airlines which saddled the group with Rs 7,000-crore debt. The latest development unfolded even as SBI and Punjab National Bank declared him a wilful defaulter, which threatened to jeopardize banking ties of the companies on which he remains a board member.

Mallya, who turned 60 last December, has signed a five-year non-compete agreement and will desist from buying additional shares in USL. Mallya had agreed to sell controlling interest to Diageo, paving the way for a$3-billion takeover in 2012. However, ties between Mallya and Diageo soured soon thereafter with the board taking note of certain related party transactions, which were rejected by the shareholders.

USL will pay Mallya $75 million over the next five years towards non-compete and non-interference agreements struck as part of the latter's exit deal. The initial tranche of $30 million will be paid in the first year. USL will also allow its former chairman to buy back some of the real estate assets, including Niladri mansion in South Mumbai, which was one of his personal homes, at the prevailing market value. Mallya continues to hold a 4% stake though almost all of this is pledged to various lenders of Kingfisher.

"This agreement is an affirmative action by which Vijay Mallya is disassociating himself from the company completely," Abanti Shankaranarayanan, a spokesperson for Diageo, said in a late night conference call. This rescues the company from all contingent liabilities, safeguards its banking relationships and enables it to focus on performing better in India's $300-billion liquor market, she added.

In April last year, USL board, controlled by Diageo, sought Mallya's resignation stating it had lost confidence in him continuing as chairman of the company due to alleged financial irregularities. Mallya had refused to step down, citing contracts between him and Diageo and had threatened to move courts. But his resistance was seen as a losing battle as Diageo controlled the board and held a 55% stake in the company.

Mallya had indicated in USL's AGM in November he would consider retirement after turning 60. Mallya's exit agreement also settles all claims concerning the alleged irregularities disclosed by USL in April.

Mallya, however, continues to remain as the chairman of United Breweries (UBL) in which he has allowed Dutch beer giant Heineken to emerge as the largest shareholder. Another company UB Holdings, the parent of Kingfisher Airlines, has no significant revenue streams except some rent-yielding commercial real estate assets.