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Diageo has finally settled a long boardroom battle with Vijay Mallya, chairman of United Spirits. The world's largest spirits company has paid $75m (£53.6m, €67.8m) to Mallya to step down from his role in the Indian drinks business.
While the British alcoholic beverages company will pay $40m upfront, the remaining will be paid over a five-year period. Apart from this, Diageo will extend Smirnoff's sponsorship of Mallya's part-owned Force India Formula 1 team, by paying $15m. Also, the deal will ensure that Mallya's son, Sidhartha, is not ousted for two years from the board of the Royal Challengers Bangalore cricket team, which is owned by Diageo.
Under the deal, Mallya, the former controlling shareholder of United Spirits, will quit the company immediately. He will also not compete or interfere in the company's operations or buy its shares for a period of five years.
Diageo's demand for Mallya to step down from the company he founded follows its investigation into United Spirits's accounts in 2015. It revealed that funds had been "improperly advanced" from United Spirits to other companies owned by Mallya between 2010 and 2012, including the now defunct Kingfisher Airlines.
Mallya had responded by saying that the Diageo-commissioned investigation was incorrect. He described it as "half-truths and twisted facts" and had refused to step down from his position.
Having now solved the issue, Ivan Menezes, chief executive at Diageo said the deal was in "in the best interests [of both Diageo and United Spirits]." He added that it would now allow the Indian company to "build on its strong platform in one of the biggest spirits markets in the world".
Mahendra Kumar Sharma, a former chairman of ICICI, an Indian private bank and a non-executive director at United Spirits, will replace Mallya. "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," Sharma said.
United Spirits has a market cap of about Rs.395bn (£4.1bn,€5.2bn, $5.7bn). Since 2013, Diageo has spent about £1.8bn to buy a 55% stake in the Indian company.