King of Good Times : Vijay Mallya

Vijay Mallya Resigns From United Spirits, Gets Rs 515 Crore

Diageo-controlled United Spirits will pay Vijay Mallya Rs. 515 crore as part of the agreement

United Spirits shares surged as much as 6 per cent on Friday following the resignation of its chairman Vijay Mallya from the company's board. Vijay Mallya, who had sold most of his shares in United Spirits and gave management control to UK-based Diageo in 2012, will now be designated as founder emeritus of United Spirits, a company founded by his family.

Here are the latest developments:

1) Vijay Mallya's exit from United Spirits comes months after the company's board begun a process to remove him as its chairman for alleged financial irregularities. Mr Mallya had denied the allegations.

2) "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," Vijay Mallya said in a statement issued on Thursday. "Accordingly, I am resigning (from) my position with immediate effect," he added.

3) Diageo-controlled United Spirits will pay Vijay Mallya Rs. 515 crore ($75 million) as part of the agreement announced on Thursday. Vijay Mallya will get $40 million immediately, while the balance amount will be paid in equal instalments over five years. 

4) Diageo's payment to Vijay Mallya will be provided for as exceptional items in United Spirits' balance sheet for the year ending June 30, the company said.

5) Diageo has signed a five-year global non-compete (excluding the UK) agreement with Vijay Mallya. The liquor baron will not pursue any claims against Diageo, United Spirits and their units as part of the deal.

6) Vijay Mallya will have no personal liability to Diageo in relation to the findings of the inquiry set up by United Spirits (announced on 25 April 2015) to look into alleged financial irregularities in the company.

7) Vijay Mallya's son Siddharth Mallya would remain on the board of the United Spirits group company which holds the Royal Challengers Bangalore IPL franchise and Diageo cannot "seek to remove him from that board for a period of two years".

8) Diageo said it has extended Smirnoff's sponsorship of the Force India Formula 1 team of which Vijay Mallya is team principal and part-owner for the next five seasons. The cost of this sponsorship continues to be $15 million per season.

9) Vijay Mallya, once known as the "King of Good Times" for his flamboyant lifestyle, sold his shares in United Spirits to Diageo at a time when his Kingfisher Airlines was grounded by debt. He, along with his associate companies, were guarantors to a Rs. 6,900 crore loan Kingfisher Airlines had taken from a consortium of 17 lenders in early 2010. Vijay Mallya remains chairman of United Breweries, maker of Kingfisher beer.

10) With Vijay Mallya's resignation, Diageo will sever all ties with United Spirits former owners and take full management ownership. Diageo owns about 55 per cent of United Spirits, which has 39 per cent of the Indian spirits market. India is Diageo's second-largest market by sales.

United Spirits shares finished the day up 2.45 per cent at Rs. 2,729.85 apiece on the BSE, whose benchmark Sensex index settled 0.78 per cent higher.

King of Good Times Vijay Mallya could have saved his company

“The agreement we have reached secures my family legacy," said Vijay Mallya, the erstwhile King of Good Times earlier this month in a statement. His flagship United Spirits is now a subsidiary of UK major Diageo.

The family legacy that Mallya talks about does not exist as he has lost control of the company which was his father’s acquisition.

Vijay Mallya. Reuters

It is often said that any business does not last beyond the third generation. Less than one-third of family businesses survive the transition from first to second generation ownership.
In Mallya’s case, it has not lasted with the second generation.

Kavil Ramachandran, who heads the Thomas Schmidheiny Centre for Family Enterprise at Indian School of Business, says liquor companies normally do well because of the nature of the business. If Mallya hasn’t, it points out to possible anomalies in how he ran his company.

Ramachandran delineates the characteristics of family-owned Business (FoB) and what sets Mallya and his running of United Spirits apart.

Founding principle: Most entrepreneurs start ventures and build on it not for themselves but for their future generations. In several cases, founding team and the next generation work hard as they believe in this principle.

What Vijay Mallya did: After the early death of his father, Vijay Mallya became the chairman of United Spirits when he was 28 years old. Either he did not have anyone to mentor or guide him or he did not heed advice. Mallya did not play the role of a leader of a business as the  trustee of the wealth bequeathed by the previous generation to him.

It is very easy to go adrift and to get carried away and destroy emotional and family wealth, says Ramachandran. This can happen to the third or fifth generation or even to the second as in Mallya’s case.

Responsibility to future generations: Family businesses have to be carefully tended to and cultivated so that they can be carried over by the next generation.

What Vijay Mallya did: He had ample opportunities to correct his mistakes or stop the companies in his control from bleeding profusely. But he chose not to.

A family business is a fragile entity and its inheritors have an important role to play in building them, points out Ramachandran. It was never too late for Vijay Mallya to take a step back and recoup the business. “When Kingfisher Airlines was bleeding, he had the opportunity to stop it. But he chose to borrow from banks and then became a defaulter,” says Ramachandran.

Don’t get your ego into the business: When an organization is not performing to its optimum, the person/s at the helm should look at what is going wrong objectively and take actions.

What Vijay Mallya did: He made his companies an extension of himself. Mallya refused to listen to reason, perhaps. Else, how could he have got so deep in the red?

“A few years ago, when the  banks started knocking at Mallya’s doorsteps, he should have spoken with the board and come out with a solution,” says Ramachandran, adding, that Mallya should have had the humility to change the route the companies were taking.

Image matters: A company’s leader’s image affects how it is perceived by the public.
What Vijay Mallya did: He showcased this image of the King of Good Times and showed off his flamboyant self at all times no matter the negative headlines and space the company and Mallya found themselves in.

“Leading a company is a great responsibility. For a family business leader, ownership is a responsibility; it doesn’t give that individual to take any decision he/she wants. Every time the leader should ask this question: is the decision good for the company in the long run? For the leader, the responsibility is to preserve and grow the wealth and pass it over to the next generation,” says Ramachandran.