Tanzania’s antitrust agency has fined East African Breweries Ltd #ticker:EABL an undisclosed amount over failure to meet the terms attached to the deal when the company acquired a controlling stake in Serengeti Breweries.
The firm was hit with the financial penalty to settle the dispute in which the Fair Competition Commission had accused the brewer of not making good on the promises made when it obtained approval for the deal in 2010
EABL group finance director György Geiszl declined to reveal the size of the fine, saying the matter was “confidential information” and was immaterial to the financial performance.
“The cost of settlement was already provided for in the fiscal year 2016, so there was no impact on the year to June 2017 financials,” said Dr Geiszl at an investor briefing on Friday.
EABL’s contingent liabilities marked as “pending legal cases” nearly tripled to Sh793.7 million in June 2016 from Sh298.8 million the previous year, according to the brewer’s latest annual report.
In July 2015, Tanzanian authorities threatened to revoke the Sh4.9 billion deal, citing breach of takeover conditions in terms of growing Serengeti’s sales, market share, and making capital investments.
“It was observed that, based on the rationale of the approval, the performance of Serengeti Breweries Ltd was not as per expectations of the commission,” FCC said.
EABL, controlled by UK’s Diageo, sold its 20 per cent stake in Tanzania Breweries in 2010 and moved to buy a 51 per cent stake in the loss-making Serengeti.
Dr Geiszl said following settlement of the dispute, EABL plans to restructure Serengeti’s balance sheet by conversion of loan to equity, but its stake will remain unchanged at 51 per cent.
“We have an agreement with class B shareholders to complete capital restructuring of Serengeti, to restore equity position and statutory profitability,” he said.
EABL net earnings for the year to June 2017 dropped 17 per cent to Sh8.5 billion, blamed on the absence of gains from asset disposals received in the previous year.
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