Stock markets shrug off brewers’ UK deal

The world’s two largest brewers, Diageo and SABMiller, remain in a strained marriage over the Kenyan and Tanzanian markets for now, even as they announced they had resolved their dispute.

On Thursday, EABL said SABMiller would continue holding a 20 per cent stake at its Kenya Breweries unit, ceded to the London based brewer in exchange for a similar stake at TBL.

Though details of the deal remain scanty, it is emerging that while TBL announced it would cease to distribute EABL products in Tanzania, EABL would manufacture and supply TBL’s beers in Kenya, officials from the two companies said on Thursday.

The announcement, made in a terse statement, raised debate on the amount of information such listed companies should release to the public.

Efforts to get a comment from the Capital Markets Authority on the same were fruitless.

While EABL has the green light to complete its planned acquisition at Serengeti Breweries Limited (SBL), the latter is apprehensive of making known its strategy for the Kenyan market.

“The agreement we have with EABL in Kenya is a separate legal agreement which remains unaffected by the settlement announced yesterday,” said Nigel Fairbrass, head of media relations at SABMiller in the UK.

EABL said it had agreed with TBL that the latter would in the meantime continue manufacturing the products in Tanzania, until such a time that the Kenyan brewer concludes the acquisition of a stake in SABMiller.

“This has to go on until SBL says it’s ready to start manufacturing our brands,” said Ken Kariuki, the corporate affairs director at EABL on phone, adding that the company was targeting a 30 per cent market share in Tanzania.

“In the meantime, we will continue to deal in SAB products in Kenya.”

EABL has courted SABMiller as their sole distributors of all its world-class spirit brands in that country.

The brewers are targeting Africa for growth as demand for their beers rises.

On Thursday, EABL’s share at the Nairobi Stock Exchange remained unmoved at Sh152.

TBL’s share price at the Dar es salaam Stock Exchange remained at Tsh1760.

Bruising battle

The share has oscillated within the same range since the company announced an eight per cent drop in profits for the last six months of 2009 last week, posting a Sh6.2 billion profit down from Sh6.5 billion.

Stockbrokers said most investors buying the counter have set their eye on dividends.

“For any investor at the Nairobi Stock Exchange, EABL is a crucial stock to have in their portfolio,” Eric Musau, head of research at Renaissance Capital said.

In a deal made public on Wednesday, the two brewers agreed to drop a court case lounged last year by SABMiller’s subsidiary, Tanzanian Breweries Limited (TBL), against the Diageo-backed East African Breweries Limited (EABL).

The development, analysts said, heightens competition for control of the lucrative Tanzanian and Kenyan beer markets as the two brewers sharpen strategies to stamp their presence on the region.

Analysts predicted a renewed battle in the Kenyan and Tanzanian markets, which could also spread to Uganda.

“I see a problem for EABL more in Uganda than in Tanzania,” said Resa Imbuye, head of research at Co-op Trust Investment Services. “EABL’s loose grip on the Ugandan beer market could see SABMiller moving hard to capture a huge chunk of the market share there,” said Mr Imbuye.

SABMiller said there were plans to invest Sh1.2 billion in a malting plant in Uganda to process locally grown barley, underscoring its confidence in growth of the market.

According to SABMiller’s 2009 annual report, Tanzania achieved a large volume growth of four per cent last year despite inconsistent energy supply and infrastructure challenges which continue to constrain growth.

Similar stake

It was unclear how the new deal will affect the shareholding adopted by the two companies seven years ago in a joint venture meant to help stop the huge revenue losses they suffered in a battle for control of Kenyan and Tanzanian beer markets.

The marriage ended on the rocks mid last year, driving the partners to an expensive legal battle.

The dispute, analysts say, was a lesson in what could go wrong with business partnerships crafted on a bloody battlefield and meant to stop the parties from incurring further losses.

EABL’s marriage to TBL saw SABMiller cede a 20 per cent stake in TBL to the Kenyan brewer in exchange for a similar stake in Kenya Breweries.

The deal saw SABMiller exit Kenya where it had put up a bruising market share battle.

The agreement specifically provided that TBL would grow EABL’s flagship Tusker brand in Tanzania as EABL did the same for SABMiller’s Castle in Kenya.