Drinks group Diageo has dropped back after a dispute at its Indian associate United Spirits.
The company, where Diageo owns nearly 55%, said it had lost confidence in chairman Dr Vijay Mallya after an internal inquiry and was asking him to step down immediately. It said if he declined to resign it would recommend his removal as a director to shareholder, adding that Dr Mallya had indicated he would not move aside.
The problem for Diageo is that it has certain contractual obligations to support Dr Mallya as a director and as chairman. Diageo said it had receive the inquiry reports from the company and would now consider its opinion.
Diageo shares are down 9p at 1861.5p, and analyst Phil Carroll at Shore Capital said:
[The inquiry is] into certain matters referred to in United Spirit’s financial statements and the auditor’s report for its financial year ended 31 March 2014... The issues are said to be in relation to certain transactions in 2010-2012 between United Spirits and the rest of the United Breweries business empire when Dr Mallya was trying to prop up the loss making Kingfisher airlines business.
Whilst this will be an unwelcome distraction to Diageo’s management, in our view, it does not have a material impact on the group’s investment case. We retain our hold recommendation.
