Sunday Nation Reporter
27 February 2010
Nairobi — A fierce battle for the Tanzanian beer market looms as East African Breweries is set to swiftly seal an acquisition deal for the country's second largest brewer, Serengeti Breweries Ltd. Sources say that on February 24 the Kenya Capital Markets Authority gave the brewer the nod to acquire what has only been referred to as "substantial" stake.
SABMiller, its majority-owned Tanzania Breweries Ltd (TBL) and EABL early last week agreed to halt a litigation process in London which was holding back the Diageo-backed EABL purchase of the firm described by industry experts as having a state-of-the-art brewing plant.
The latest turn of events means SBL takes away the lucrative contract for brewing EABL products from Tanzania Breweries that has been in force since Diageo and SABMiller called a truce after a vicious turf war in Kenya a decade ago.
Shareholders of EABL will soon be summoned to an extraordinary general meeting to approve the deal expected to give the UK Diageo-backed brewer a sorely needed alternative to the flat Kenyan beer market.
Brands of the Nairobi-based firm already hold 12 per cent of the Tanzanian market, while Serengeti holds another 17 per cent. SABMiller, on the other hand, holds an estimated paltry 1 per cent of the Kenya market where its products will for now still be brewed and marketed by EABL.
SABMiller, in communication with Sunday Nation, maintained they would not return to the Kenyan market despite the fact that it is an open secret the London-listed firm has engaged research and PR consultants in Nairobi. EABL is understood to be planning a major logistic and resource injection into the Serengeti entity.
The collapse of the 2002 anti-competitive deal will be much welcomed, not only by shareholders here but by the competition watchdog in Tanzania. Some 800 people lost jobs on either side of the border after SAB-owned Thika Castle Brewing Ltd and EABL's Kibo Breweries shut down.
Godfrey Mkocha, the director-general of Tanzania's Fair Competition Commission, last year welcomed EABL's unilateral move to end the deal and cautioned that he was watching any attempt to forge a joint venture by the two multinationals. Kenyans will be waiting to see what SABMiller does, if at all, here.
One, they can take the so-called "green field" option entailing starting from scratch, which is perhaps too expensive, or they can take over one of the two independent operators. But both are too small and would require major capital injection in plant and distribution.
The firm has been on an acquisition spree, including the non-alcoholic business, and may find Kenya a non-viable option especially with the earlier humiliation probably fresh in its mind. Both SABMiller and Diageo--and their charges--have signed a gag order after their truce last week.
Attention now turns to the 20 per cent of TBL snapped by EABL and a similar stake acquired by the Tanzanian brewer in Kenya Breweries Ltd. A good pointer to what is likely to happen is the fact that bitter rivals would be sitting on each other's boards, a situation that may not be feasible in the long haul.
However, for SABMiller, retaining the 20 per cent in KBL may represent a profitable short-haul option if the equity part is not renegotiated.