Capital Markets

Diageo kicks off Sh22.7bn EABL stake raise


East African Breweries Limited (EABL) CEO Jane Karuku during the release of the brewer’s half-year to December on January 27, 2023. Looking in is the EABL chairman Martin Oduor-Otieno. PHOTO | DIANA NGILA | NMG

British multinational Diageo has kicked off the first phase of its plan to buy an additional 118.4 million shares in East African Breweries Plc (EABL), with priority for allocation given to investors who were on the firm’s books by January 16.   

The offer, which will see EABL shareholders bid to sell their shares to the multinational at the Nairobi Securities Exchange (NSE) at a price of Sh192 per unit, is running in two phases between February 6 and February 24, and between February 27 and March 17, 2023.

Diageo said in a tender offer document published Monday that it has designated 47.5 million shares for a guaranteed allocation of up 10,000 shares for all offers it receives, with preference given to early bidders who were on the firm’s books by the record date of January 16.

In the second phase, an additional 55 million shares will be used to satisfy bidders who missed out on their full allocation in the first phase, with the balance being taken up without restriction to cover the remaining bids.

Read: Why Diageo is raising its EABL stake

The move by the company to prioritise early bidders is meant to encourage uptake of the offer, and also reward existing shareholders who now stand the chance to make a significant capital gain on their stock.

“The early acceptance shareholders will enjoy the benefit of having their shares included in the larger pool allocated for the first closing, and should the tender offer be oversubscribed, be likely to be able to sell a greater proportion of their shares than those shareholders who only apply later before the second closing,” said Diageo in the tender document.

The offer price will see Diageo spend Sh22.7 billion to acquire the additional stake of 14.97 percent in its subsidiary EABL, presuming it nets all the shares it is targeting in the tender.

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.

Read: Investors sell Sh285m EABL shares as Diageo stake plan revs up price

In the subsequent three-and-a-half months, the share has appreciated in price to trade at Sh177 on Monday morning.

The willingness by Diageo to offer a steep premium on the EABL shares indicates that the firm sees undervaluation on the stock, but also an intention to take advantage of the prevailing lower prices at the NSE to strengthen its hold on the brewer.

Diageo indirectly holds a 50.03 percent stake in EABL—representing 395.6 million shares— through its wholly-owned subsidiary Diageo Kenya.

EABL has been one of the few companies at the NSE offering a stable dividend policy due to the maturity of its business in terms of capital investments.

It reported flat growth in net income at Sh8.7 billion in the half year ended December as higher costs and increased taxation offset sales growth.

The company thus kept its interim dividend unchanged, declaring a payout of Sh3.75 per share payable to shareholders on record as of February 16.

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