SABMiller tangled in Kwal dispute

The planned end of a business partnership between South Africa’s Distell and Kenya Wine Agencies Limited (Kwal) is set to intensify the battle between SABMiller and East Africa Breweries Limited.

Diageo-led East Africa Breweries Limited (EABL) and SABMiller through its local subsidiary Crown Beverages have been locked in a battle for control of the regional beer market.

Standard Investment Bank analysts reckon that the battle with shift to the spirits market as Distell—which is partly owned by SABMiller— severs links with Kwal to set up its own operation.

“Tying in the association between Distell & SABMiller and the move by Distell to set up its own operation to manage distribution and marketing appears like the start of a grand assault on EABL,” said Standard Investment Bank in an investment brief to its clients.

“SABMiller owns 29 per cent of Distell, which could be used as an additional distribution route into the Kenyan market,” added the investment bank.
SABMiller has been distributing its brands like Redds, Genuine Draft and Castle Lager through Crown Beverages —which it bought late last year after taking control of family-owned Crown Foods, the bottlers of Keringet drinking water.

This come after EABL ended a partnership that saw the Kenyan unit supply SABMiller products while the South African’s Tanzanian unit fed the market with EABL products.

SABMiller Kenyan subsidiary Castle Brewing shut down in 2002, forcing it to enter into an distribution agreement with EABL after the SABMiller predecessor bought 20 per cent stake in EABL in a share swap.

EABL sold its stake in Tanzania Breweries Limited and bought a majority stake in rival Serengeti Breweries last year.

It also bought back the 20 per cent stake held in Kenya Breweries Limited by SABMiller, which has set off a vicious market share war between the business partners for control of Kenya, Uganda, Tanzania and South Sudan markets.

But the good returns in the spirits business is egging increased interest from SAB Miller, says Standard Investment Bank, adding that this could be behind Distell’s plan to terminate its partnership with Kwal—which has moved to court to block the move.

Distell has based its move on the continued delay of a privatisation process it claims is frustrating strategic plans.

Distell says its patience has been stretched to the limit by the Kenya government’s continued delay of Kwal privatisation that was to give it an ownership stake in the firm.

The government had already approved the sale of 30 per cent its stake in Kwal to the South African firm.

The Treasury has maintained that the absence of a board at the Privatisation Commission has made it impossible to start the process of selling part of the government’s 73.57 per cent stake in the alcoholic drinks firm, pleading with the South Africans for patience.

The Treasury last month published the names of people it wants appointed to serve in the commission’s board, but Parliament is yet to vet and approve the candidates.