EABL says to buy SABMiller stake in Kenyan brewer

East African Breweries (EBL) is buying SABMiller’s 20% stake in its Kenyan unit as part of a deal to end a partnership that allowed the firms to produce and market each other’s products.

EABL, East Africa’s biggest company by market value and owned by British group Diageo, said on Monday it would pay 19.5-billion shillings for the stake.

EABL, which already owns 80% of Kenya Breweries, markets Tusker lager, White Cap, Pilsner, Johnnie Walker and Guinness.

Under the deal to undo the cross-shareholding, EABL will sell the 20% stake it holds in neighbouring Tanzania Breweries, a unit of SABMiller, through a public offer at a later date. EABL’s stock is already cross-listed in Kenya, Tanzania and Uganda.

Analysts said the deal, coupled with EABL’s regional sales, could boost its revenues, starting this financial year which runs to the end of July. Last year net revenues grew by 10% to 37.9-billion shillings.

“Factoring in the 20% stake and EABL’s fundamentals, we project at least 14% in revenue growth compared with last year,” said Robert Munuku, an analyst at Drummond Investment Bank.

“They are adding leverage in the industry, so it’s a good strategy for them … expanding their revenue streams.”

Ready for more
In 2009, EABL said it would end its brewing and distribution deal with SABMiller through Tanzania Breweries.

That deal, crafted nearly 10 years ago to end a bitter fight for the Kenyan beer market, was reciprocal with EABL brewing and marketing SABMiller products such as Castle Lager in Kenya.

Rapid growth in Tanzania, which contributed the largest share of group profit outside Kenya in EABL’s 2009/10 year to end-June, forced EABL to change strategy.

EABL shares closed 0.46% higher at 215 shillings a share, but analysts said investors were still evaluating the impact of the purchase of SABMiller’s stake.

Uncertainty among investors caused the stock to fluctuate between 212 shillings and 214 shillings after the announcement.

“People have not yet understood the effects of that. It may not be very clear whether it is a positive or negative move,” said John Kamunya, head of research at Dyer & Blair.

In late 2010, EABL acquired a 51% stake in Tanzania’s second-largest brewer, Serengeti Breweries at a cost of $60.4-million, readying itself to deepen penetration of the growing market. — Reuters

Beatrice Gachenge
Beatrice Gachenge works from Deloitte East Africa, Kenya. An integrated marketing communications professional. Ex business reporter. Views = own, RT not endorsement. Beatrice Gachenge has over 3819 followers on Twitter.

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