Diageo to challenge India court ruling voiding United Spirits sale

British drinks giant Diageo said Saturday it will challenge an Indian court decision annulling its purchase of some shares of United Spirits that threatens its control of India's biggest liquor firm.

Friday's ruling came five months after Diageo announced it sealed a 52.4-billion rupee ($845 million) deal to aquire a quarter of United Spirits' shares which made it the Indian company's controlling shareholder.

"We do not believe there are any grounds for declaring the sale of shares in United Spirits Ltd purchased by Diageo on July 4 from United Breweries Holdings Ltd (UBHL) as void," Diageo said in a statement.

"Once we receive the full written (court) order, we will review the detail of that order. We confirm we intend to appeal the matter further," Diageo added.

Through its purchase of United Spirits, London-based Diageo has been seeking a dominant presence in the world's biggest whisky market.

At the root of the case is debt-laden Kingfisher Airlines, part of the corporate empire of flamboyant Indian tycoon Vijay Mallya, that owes tens of millions of dollars to creditors.

The Karnataka High Court was acting on a plea filed by creditors of UBHL, the holding company of Mallya's UB group, that sold a seven percent stake in United Spirits to Diageo.

UBHL had given guarantees worth millions of dollars to Kingfisher Airlines' lenders.

Creditors of the airline have been chasing return of their money by seeking to derail the Diageo deal. They want to force the sale of UBHL and take the proceeds to settle their claims.

Friday's ruling overturned an earlier judgement giving conditional approval to UBHL's plan to sell its United Spirits shares to Diageo.

Diageo had initially intended to buy a majority stake in United Spirits but an open offer for shares fell flat and the British drinks maker had to settle for control of the company.

Diageo, the world's biggest distiller by sales, announced last month it held 26.37 percent of United Spirits.

The court ruling would cut Diageo's stake in United Spirits to 19.39 percent, reducing it to minority shareholder status.

This would make it tougher for the British company to drive change at the Indian drinks company which it is hoping to use to promote a taste for premium brands among India's growing middle class, analysts said.

Diageo, which has been expanding aggressively in emerging markets, sells various popular brands, including Smirnoff Vodka and Johnnie Walker whiskey.

United Spirits Ltd, or USL, is India's leading spirits maker, marketing such brands as Bagpiper and Royal Challenge and is a prize for Diageo for its far-reaching distribution market.

Analysts had always said the USL sale to Diageo could face risks from Kingfisher creditors seeking compensation for their losses.

Diageo said it was "disappointed, as a bona fide purchaser" of the USL shares to have become embroiled in "the private dispute between Kingfisher and its creditors".

Prakash Mirpuri, a UB Group vice-president, said the company needed to study the lengthy judgment before commenting in detail.

But he said one of the "obvious options we have" is an appeal to the Supreme Court.

The ruling is the latest blow to the multi-stage deal that has been fraught with complications and was the outcome of years of stop-start negotiations with the unpredictable Mallya.