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Danone buys Kenyattas out of Brookside Tanzania

Brookside factory in Ruiru, Kiambu. FILE PHOTO | NMG
Brookside factory in Ruiru, Kiambu. FILE PHOTO | NMG 

Dairy processor Brookside is preparing to exit the Tanzanian market with the sale of its entire stake in the subsidiary to French partner Danone.

Danone, which bought a 40 per cent stake in Brookside Dairy’s business three years ago, has written to Tanzania’s Fair Competition Commission (FCC), expressing its intention to fully acquire the business for an undisclosed amount.

“The FCC has received notification that Brookside Holdings Limited of Dubai, United Arab Emirates, intends to acquire 100 per cent of the issued share capital in Brookside Dairy Tanzania Limited,” the competition watchdog said in a notice.

“Brookside Tanzania is in the business of purchasing, distributing and selling dairy products in Tanzania and the FCC is currently investigating the intended acquisition.”

Danone is buying the stake through Brookside Holdings which, despite having similar names as the Kenyan dairy giant, is a fully-owned subsidiary of the French food conglomerate.

Brookside Dairies is majority-owned by the Kenyatta family.

Minority partner

If successful, the transaction will leave Danone as Brookside’s minority partner in Kenya and Uganda while fully owning the Tanzania business that has been facing challenges since its establishment in 2004.

Brookside’s divestiture from Tanzania comes against the backdrop of lukewarm diplomatic relations between Kenya and its southern neighbour.

The two countries have developed mutual suspicion arising from differences over Uganda’s decision to abandon a joint plan to build a multi-billion shilling crude oil pipeline through Kenya in favour of Tanzania and Dar es Salaam’s refusal to ease its tough work permit regulations for Kenyans.

Ruiru-based Brookside gained a footing in Tanzania after it acquired the Arusha plant of the defunct State-owned Tanzania Dairies, promising to rehabilitate the firm and eventually install an ultra-heat-treated (UHT) milk processing factory.



BD GRAPHIC | NMG
BD GRAPHIC | NMG

Impatient

But Tanzanian authorities soon got impatient and accused the Kenyan dairy firm of short-changing its citizens by collecting milk and exporting to Kenya for processing, instead of establishing local operation.

“I would like to see all Tanzania’s milk being processed here. We can’t turn our factory into a mere collection centre for a Kenyan factory,” Tanzania’s then Minister for East African Co-operation, Diodorus Kamala, said in August 2008.

Brookside Tanzania was at the time collecting 14,000 litres of milk per day from about 5,000 farmers.

The Kenyan dairy firm argued that Tanzania did not have adequate milk supplies to feed a plant, and insisted that in order to viably process the milk in-country, it needed to collect at least 60,000 litres daily.

Tanzania’s President John Magufuli in 2015 publicly recounted why Brookside was ‘kicked’ out, lending credence to talk that the two countries are not reading from the same regional integration script.

Brookside’s director of milk procurement, John Gethi, said the processor is “not aware of such developments” following the Business Daily’s request for a comment about the transaction.

Finished products

Brookside supplies Tanzania with finished dairy products from its Kenyan base.

The business has two sales offices located in Arusha and Dar es Salaam.

The Business Daily did not establish the current ownership status of the Tanzania Dairies or whether it was part of the assets that Danone is aiming to acquire.

Founded in 1993, Brookside has a regional distribution network of more than 200,000 outlets with a product portfolio that spans yoghurt, butter, fresh and powdered milk.

The firm’s holding company – Brookside Africa Limited – is 50 per cent owned by the Kenyatta family, 10 per cent by a Dubai equity firm Abraaj Group and 40 per cent Danone.

Brookside has the largest milk collection network in East Africa, dealing with about 160,000 farmers in Kenya and 100,000 in Uganda from whom it collects 1.5 million litres and 500,000 litres of raw product per day respectively.

The Kenyatta family has been aggressively expanding its flagship milk operations regionally – alongside its several other businesses – with a series of mergers and acquisitions.

44pc market share

The dairy firm in 2013 completed a Sh1.1 billion acquisition of rival Buzeki Dairy – the maker of the Molo Milk brand, pushing its share of the processed milk market locally to over 44 per cent.

Brookside had previously acquired other local dairy brands, including Ilara, Tuzo and Delamere.

Two years ago, Brookside paid Sh3.5 billion for a 51 per cent stake in Sameer Agriculture & Livestock Limited, a dairy processing company in Uganda.

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