EAST AFRICA – East African Breweries Limited (EABL) seeks to acquire an additional 30 percent stake in its Tanzanian subsidiary, Serengeti Breweries Limited, in a deal that will deepen its grip.
The deal comes barely a year after the brewer spent Sh313 million (US$2.9m) last July to acquire four percent additional stake in Serengeti.
“EABL intends to enter into a conditional transaction to purchase an additional 30 percent shareholding in Serengeti Breweries. Completion of the transaction is subject to various regulatory approvals in Kenya and Tanzania,” EABL said in a cautionary statement to shareholders.
The brewer’s shareholding in Serengeti has aroused controversy in the recent past, with Tanzanian government aggressively protecting the minority shareholders.
Last year’s transaction raised its legal and economic ownership in the subsidiary to 55 percent and 74.5 percent respectively.
Before this deal, EABL owned a 51 percent stake in Serengeti but had a larger claim in terms of assets and earnings at 72.5 percent.
In the year ended June 2018, EABL announced the conversation of Sh15.3 billion (US$147.2m) loans receivable from Serengeti into equity sought to ease the Tanzanian brewer’s debt burden.
This transaction increased EABL effective interest in Serengeti from 51 percent to 72.5 percent.
However, Tanzanian authorities previously opposed EABL’s acquisition and forced it to pay an unspecified fine to settle alleged flouting of takeover rules.
This led to the agreement that the legal shareholding remains unchanged and that minority shareholders be using 50 percent of dividends declared to gradually pay off the EABL debt.
The agreement was that upon repayment of the debt by Serengeti through dividends, the effective economic interest of EABL would revert back to the original 51 percent status, reports Business Daily.
According to the brewer’s half year ended December financials, Serengeti is the group’s fastest growing business, expanded by 19%, it accounted for 12 percent of the total sales.
Net sales from this unit rose 26 percent during this period, the fastest among the three units, driven by growing interest in Serengeti Lite among consumers.
EABL sees subsidiaries as key growth areas and continues to pump in money to increase expansion and also market the brands.