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USL Open Offer And Writedown On Networth

There are two significant events that will affect this stock

1) The long pending takeover by Diageo

2) Sale of Whyte Mackay assets

For the takeover to become effective USL needs to divest its stake in Whyte Mackay,a company which it acquired in 2007. The sale was a result of a proposal that USL made to UK Competition authority.

The open offer for USL is at Rs.3030 and will be open from June 11-24. Currently Diageo PLC owns 28.78% of USL through an indirectly owned subsidy - Relay B.V. On successful completion of the open offer, its stake will almost double to 54.78%

The consolidated accounts of USL will include an impairment in its accounts. Reducing its networth by Rs. 3690 cr. However the sale proceeds will reduce its gross debt/EBITDA from 6.61x to 3.4x.

A short term trade with less than a month horizon.

Sell USL 3200 Call @ 18 Rs. Lot of 125

Margin Requirement - 54,600

Horizon - Option Expiry 26 June

The open offer price of Rs. 3030 will act as a resistance to any up move in the stock. Also the new government is expected to increase taxes on alcohol.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: BSE: 532432 NSE: MCDOWELL-N ISIN: INE854D01016