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Diageo suffers setback in bid for Ethiopian brewer

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The EABL plant in Ruaraka, Nairobi:  Ethiopia has dashed Diageo’s hopes of entering the market. Fredrick Onyango

The EABL plant in Ruaraka, Nairobi: Ethiopia has dashed Diageo’s hopes of entering the market. Fredrick Onyango 

By MOSES MICHIRA

Posted  Thursday, June 23  2011 at  00:00

UK brewer Diageo, which owns a majority stake in East Africa Breweries Ltd (EABL), has suffered a setback in its quest for a share of the Ethiopian market after its bid to buy a state-owned company in Addis Ababa was cancelled.

Diageo, which owns 50.03 per cent of EABL, had put a direct bid of $200 million (Sh18 billion) to acquire the Ethiopian brewer, Meta Abo, as it raced for a piece of the market ahead of rivals Heineken and SABMiller.

But Ethiopia’s Privatisation and Public Enterprise Supervising Agency cancelled the bid, but gave the nod to Heineken to acquire two other state-owned brewers—Harar and Bedele, tilting the battle for the market in favour of the Dutch global brewer.

The agency attributed the cancellation to the review of terms of the sale that could have seen the State cede 70 per cent of its stake in Meta Abo and the remaining share in five years, according to Ethiopia’s media reports.

The three multinational brewers have been battling for a larger share of the Eastern Africa market with their eyes cast on the rising incomes in emerging markets.

Analysts say the delay of the sale of Meta Abo—which has been on the cards since 2005—will give Heineken an opportunity to consolidate its presence in the Ethiopian market and Africa where it has been a late entrant compared to SABMiller and Diageo.

Growing population

“The cancellation is a plus to Heineken given that it is a promising market because of its large growing population and improving economy,” said Kestrel Capital.

Ethiopia’s population of about 85 million people and its low consumption per capita compared to its regional counterparts is what has sparked a scramble among multinationals for a piece of the market.

Ethiopia was selling its stakes in three breweries including Meta Abo, Harar, and Bedele with Heineken acquiring the latter two for $163.4 million (Sh14.7 billion).

The Diageo’s direct bid only marked a shift in strategy for the multinational brewer, which has preferred to use EABL as its vehicle in the East Africa. EABL has in recent years expressed interest in buying Meta Abo as it races to reduce its reliance on the Kenyan market that has been showing signs of maturity.

Last year, the Kenyan market generated 83 per cent of EABL’s profits and 70 per cent of its revenues.

“It’s a double blow. Diageo will have to wait longer to make another stab at Ethiopia while EABL is out,” said Kestrel Capital.

The world’s top three brewers’ interest in the firm is set to add impetus to the ongoing battle for control of the global beer market. The East African market is increasingly becoming a battle zone between SABMiller and Diageo.

Already, a vicious battle for market dominance is under way in Kampala between Uganda Breweries, owned 98.2 per cent by EABL, and Nile Breweries, which SABMiller owns 60 per cent.

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