Diageo Sh22.7bn EABL offer oversubscribed in first phase

Beer production line at the EABL plant in Ruaraka, Nairobi. 

Photo credit: File | Nation Media Group

British multinational Diageo’s offer to buy an additional 14.97 percent stake in East African Breweries Plc (EABL) has been oversubscribed in its first phase, signalling high investor appetite for the premium the company offered for the shares.

Diageo said Monday that EABL shareholders offered it 122.018 million shares in the initial phase, which closed on February 24, which is higher than the total 118.394 million units the company is looking to buy in two steps.

The three percent oversubscription means that allocations will now be done on a prorated basis as earlier advertised by Diageo, prioritising early bidders who were on the EABL shareholder register by January 16 (the record date of the offer).

The London-based firm is acquiring the additional stake through its wholly-owned subsidiary Diageo Kenya, which already holds a 50.03 percent stake in EABL. The stake will rise to 65 percent now that Diageo has already achieved offers exceeding its target.

The company is buying 118.4 million shares in the brewer at Sh192 per unit, which puts the total purchase cost at Sh22.7 billion.

“As of the first closing, 1,480 early acceptance shareholders tendered a total of 122.018 million ordinary shares. This number exceeds the 118.394 million ordinary shares that Diageo Kenya intends to purchase. Therefore, Diageo Kenya will apply the pro-rata scale-down mechanism specified in the tender offer document,” Diageo said.

Under the prorated allocation plan, the company set aside 47.5 million shares in a “guaranteed allocation pool” to satisfy all early bidders up to a maximum of 10,000 ordinary shares.

In this pool, however, preference will be given to those shareholders on the brewer’s register as of the record date, with newer owners only accessing their allocation afterwards.

“Of the 47.5 million shares designated as the guaranteed allocation pool, 6.416 million shares will be reserved for the early acceptance shareholders. The remaining 41.08 million shares in the pool will remain available to satisfy all tenders received from the final acceptance shareholders up to a maximum of 10,000 ordinary shares each,” Diageo said.

The second phase of the sale, whose bidders will join the prorated allocation plan, is currently underway and will run until March 17.

The move by the company to prioritise early bidders was seen as a way to encourage uptake of the offer and reward existing shareholders who now stand a chance to make a significant capital gain on their stock.

The Sh192 offer price represents a premium of 39 percent on EABL’s share price of Sh138 on the last day of trading before Diageo disclosed its offer on October 14, 2022.

In Monday’s trading, the EABL share recorded a sharp gain of 6.7 percent to close at Sh187 per unit, the highest price it has touched since the tender offer opened, and also representing a 19-month high for the stock.

The purchase of additional shares, according to Diageo, is largely driven by the brewer’s improved returns to investors and growing market share in the country.

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