(Updates with SABMiller’s comments from sixth paragraph.)
June 6 (Bloomberg) -- Diageo Plc’s Kenyan unit agreed to buy SABMiller Plc’s 20 percent stake in Kenya Breweries Ltd. for 19.5 billion shillings ($225 million) as part of an agreement to end cross-shareholdings in each other’s operations.
East African Breweries Ltd., in which Diageo owns a 50.03 percent stake, will also sell its 20 percent holding in SABMiller’s Tanzania Breweries Ltd. in a public offering, the Nairobi-based company said in an e-mailed statement today. The sale is to satisfy conditions imposed by Tanzania’s antitrust regulator after it approved EABL’s purchase of Serengeti Breweries Ltd. last year.
Kenya Breweries and Tanzania Breweries previously held a 20 percent shareholding in each other in terms of an agreement under which the companies marketed each other’s products. EABL, East Africa’s biggest company by market value, already owns 80 percent of Kenya Breweries.
East African’s purchase of SABMiller’s stake “means that SABMiller is going to come back to the Kenyan market,” Eric Musau, an analyst at Nairobi-based African Alliance Securities Kenya Ltd., said in a phone interview today.
Diageo, the maker of Guinness stout and Smirnoff vodka, said in October it will invest 100 million pounds ($164 million) to expand in Africa in 2011 as growth on the continent helps compensate for slowing sales in Europe and the U.S. The company posted a 10 percent increase in net sales excluding acquisitions last year.
The transactions are a reversal of a deal agreed between the SABMiller and Diageo in May 2002 when EABL bought Castle Breweries Ltd., the Kenyan unit of SABMiller, and the right to brew and distribute Castle’s brands in Kenya, Beth Longcroft, a business media relations manager for SABMiller, said in a phone interview from London.
In return SABMiller acquired Kibo Breweries Ltd. in Tanzania and the rights to brew and distribute EABL’s brands in Tanzania, Longcroft said.
“What that means is that immediately we take responsibility for the sale and distribution of Castle Lager and Redds in Kenya,” she said. “We intend to do so as soon as we possibly can, initially importing our products from Tanzania Breweries Ltd.”
Once EABL sells its stake in Tanzania Breweries, “there are no restrictions on SABMiller’s entrance into the Kenyan market,” Longcroft said.
SABMiller controls 75 percent of the alcoholic drinks market share in Tanzania, she said. In Kenya, EABL’s market share by revenue is 73 percent and 68 percent of volumes, Wycliffe Masinde, an analyst at Nairobi-based Kestrel Capital East Africa Ltd., said in an e-mailed note in May 2010.
“We believe that our best interests in East Africa are served by following an independent strategy,” Brenda Mbathi, a spokeswoman for EABL, said in an e-mailed response to questions.
The EABL urged shareholders to exercise caution in their dealings in the company’s stock until further notice. The shares, which trade on the Kenyan, Tanzanian and Ugandan stock exchanges, erased an earlier decline of as much as 0.9 percent to close unchanged at 214 shillings by the 3 p.m. close in Nairobi.
“The main concern for shareholders is how the transaction will be financed,” Musau said. “It is a substantial amount, but the value of Kenya Breweries rises because it has less competition for now.”
--Editors: Paul Richardson, Ana Monteiro, Philip Sanders
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