Mallya quits United Spirits with Rs515 cr package

United Spirits shares surged as much as 6 per cent today following the resignation of its chairman Vijay Mallya from the company's board on Thursday.

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.

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. Mallya had denied the allegations.

"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."

United Spirits will pay Mallya Rs515 crore ($75 million) as part of the agreement announced on Thursday. He will get $40 million immediately, while the balance amount will be paid in equal instalments over five years.

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

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

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.

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".

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.

Mallya, known 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 Rs6,900 crore loan Kingfisher Airlines had taken from a consortium of 17 lenders in early 2010.

Mallya remains chairman of United Breweries, maker of Kingfisher beer.

With 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 controls 39 per cent of the Indian spirits market. India is Diageo's second-largest market by sales.