Did Tanzania Breweries deal favour SABMiller?

Saturday August 03 2013

Last week, EABL issued a profit warning, blamed on a transaction to terminate a mutual marketing of each other’s products with SABMiller. SABMiller is the parent company of Tanzania Breweries Ltd (TBL), while Diageo is the parent company of EABL.

From mid-2011 to early 2012, EABL and SABMiller were going through a breakup, which saw SABMiller book a $103 million profit on the sale of its 20 per cent stake in Kenya Breweries Ltd (KBL) to EABL, almost two and a half times what EABL made for the sale of a similar stake in TBL.

EABL made a gain of Ksh3.64 billion ($43.1 million) on the disposal of 58.98 million TBL shares, its 20 per cent stake, through a secondary IPO at the DSE, but also borrowed Ksh19.46 billion ($231.13 million) from Diageo to pay for KBL.

The finance costs on the five-year loan, whose interest rate is set at 1.5 per cent above the 364-Treasury bill rate, are partly to blame for the profit warning, meaning the termination is still reverberating at EABL and could be for some time to come. TBL posted a profit after tax of Tsh177.12 billion ($109.3 million) profit after tax in the 12-month period ended March.

As investors wait to see how EABL is performing on its own in Tanzania, they are asking: Was deal skewed in favour of SABMiller?

By David Mugwe and Peterson Thiong’o.