TANZANIA – East African Breweries Limited, majority-owned by British multinational alcoholic beverage company Diageo, has increases its ownership in its Tanzanian subsidiary, Serengeti Breweries to 85% following the acquisition of additional stake.
The deal comes more than a year after the brewer had revealed its intentions of acquiring an additional 30% stake in the Tanzanian unit in March 2020, after identifying the booming beer and spirits market in East Africa’s largest country.
“We got one minority shares. We decided to buy them out and they also wanted to sell. The shareholding changed from 55 to 85 percent,” EABL managing director Jane Karuku.
According to reports by Business Daily, the drink company undertook the deal through US$55 million cash payment and US$19 million in outstanding loans that EABL had earlier extended to the Tanzanian brewer.
This was not the first purchase of an additional stake in SBL by EABL as in July 2019, the brewer spent about US$3 million to acquire a four percent additional stake in Serengeti.
The transaction raised its legal and economic ownership in the subsidiary to 55 percent and 74.5 percent respectively.
Before this deal, EABL owned a 51 percent stake in Serengeti but had a larger claim in terms of assets and earnings at 72.5 percent.
EABL’s bid to grow its stake in Serengeti through the acquisition of minority shareholders has in the past courted controversy, with the Tanzanian government aggressively protecting minority interests.
In the year ended June 2018, the beer major announced the conversation of US$147.2 million loans receivable from Serengeti into equity sought to ease the Tanzanian brewer’s debt burden.
This transaction increased EABL’s effective interest in Serengeti from 51 percent to 72.5 percent.
However, Tanzanian authorities opposed the acquisition and forced it to pay an unspecified fine to settle the alleged flouting of takeover rules.
‘’The drink company undertook the deal through US$55 million cash payment and US$19 million in outstanding loans that EABL had earlier extended to the Tanzanian brewer’’
This led to the agreement that the legal shareholding remains unchanged and that minority shareholders be using 50 percent of dividends declared to gradually pay off the EABL debt.
The recent acquisition is a major breakthrough for East African Breweries as it seeks to expand its market share in the Tanzania market, to shift from its current number two position in terms of largest beer producer in the country.
SBL’s own brands take 15% of the market by volume and when combined with EABL’s portfolio, accounts for approximately 28% of the Tanzanian branded beer sector.
The business has also been exhibiting stellar performance in recent years as in the year ended June 2021, its sales were up by 15 percent with beer and spirits sales growing by double-digit.
The unit was a major beneficiary of the giant brewer’s US$71 million capital investment in the year, largely targeted at the Moshi plant which EABL has identified as a major player in its growth strategy for the spirits business.