Kenya: Diageo leaves open possibility of buying additional EABL shares from open market

British multinational Diageo has left open the possibility of buying additional EABL shares from the open market at the Nairobi Securities Exchange (NSE) once its tender offer for an extra 14.97 percent stake in the brewer closes later this month, the Business Daily Africa reported on March 1.

The London-based firm, which is executing the acquisition of the additional stake through its wholly-owned subsidiary Diageo Kenya, ran the first phase of the tender between February 6 and 17, while the second phase opened on February 27, to run until March 17.

In its tender offer document released before the sale opened on February 6, Diageo said that it would retain a right to roll out additional tenders, or purchase stock in the open market, raising the possibility that the firm might further add to its stake in EABL down the road.

It is seeking to buy a total of 118.4 million shares in the brewer in the current tender offer at a cost of Sh192 per unit, which puts the total purchase cost at Sh22.7 billion.

The London-based firm currently holds a 50.03 percent stake, representing 395.6 million shares, in EABL through Diageo Kenya. Should the tender offer be fully subscribed, this stake will rise to 65 percent.

“Diageo Kenya reserves the right, subject to obtaining any necessary approvals from the CMA or any other relevant regulatory authorities, and to compliance with applicable law, to launch one or more additional tender offers in relation to EABL, or otherwise to acquire additional shares through on-market transactions in EABL, following the close of the Tender Offer,” reads the offer document in part.

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.

The brewer is now one of the most profitable companies at the NSE, having doubled its net earnings to Sh15.57 billion for the year ended June 2022 from Sh6.96 billion a year earlier.

Its return on equity —a ratio that gauges how efficiently a company generates profits— jumped to 58.9 percent from 46.9 percent. The higher a company’s ROE, the better it is at using shareholder funds to make profits.

The purchase of extra shares is also due to a desire by the multinational to raise its holdings in the EABL to match the level it owns in other listed African subsidiaries— where it holds 58 percent of Guinness Nigeria and 80.4 percent of Guinness Ghana Breweries.

In 2021, the firm also acquired an additional 30 percent stake in EABL's Tanzania subsidiary, Serengeti Breweries Limited for Sh5.98 billion, raising its ownership to 85 percent.

This followed an earlier acquisition of four percent in July 2019 for $3 million, which had raised its stake in Serengeti to 55 percent.

Diageo is also looking to match the average shareholding of approximately 66.9 percent held by multinational parent companies in listed subsidiaries in Kenya.

02 March, 2023