TANZANIA – Beer maker EABL could be forced to sell part of or its entire 51 per cent shareholding in Serengeti Breweries as part of regulatory action by Tanzania’s competition watchdog.
The Fair Competition Commission (FCC) of Tanzania has given notice of intention to withdraw approval for East African Breweries’ (EABL) acquisition of Serengeti for Sh4.9 billion in 2010, citing breach of takeover conditions.
The regulator said in a press notice that EABL had agreed to ensure that Serengeti grows faster under its control than it was doing prior to the transaction but had failed to meet expectations.
“The commission has issued a notice of intention to revoke its own decision with respect to the merger against EABL,” the regulator said as quoted by financial news agency Bloomberg.
FCC did not specify the actions it would take but Tanzania’s Fair Competition Act gives it power to force an offending acquirer to dispose of some or all of its shares within a timeframe set by the regulator.
The beer maker however said it is in talks with Tanzanian authorities regarding the notice.
“EABL wishes to inform the public, its shareholders, customers and all other stakeholders of SBL, that EABL vigorously disputes the intended revocation and awaits a date for the formal hearing with the FCC,” said the EABL Group Corporate Relations Director Julie Adell-Owino.
FCC can also declare the acquisition void, ordering the transaction to be reversed with the acquirer getting all or part of its cash investment from the investors who had sold the shares.
The regulator has invited submissions from those interested in the matter and third parties who have reason to believe that their interests would be affected by FCC’s intended action.
The information is expected to help inform FCC’s eventual decision in coming months. EABL’s takeover of Serengeti came after its parent firm Diageo ended an uneasy partnership with rival South African brewer SABMiller in Kenya and Tanzania.
The Nairobi Securities Exchange-listed firm previously had a production and marketing deal with SABMiller’s Tanzania Breweries Limited (TBL) which was mandated to sell EABL’s brands in Tanzania.
The agreement, which was meant to end a bitter fight for the Kenyan beer market, was reciprocal with EABL marketing SABMiller products such as Castle Lager in Kenya.
Termination of the agreement saw EABL sell its 20 per cent stake in TBL for $71.4 million (Sh6.9 billion) in 2012.
The brewer also spent nearly Sh20 billion buying back the 20 per cent stake in its key subsidiary Kenya Breweries Limited that it had sold to SABMiller as part of their partnership.
EABL had said its takeover of Serengeti would give it a combined market share of 28 per cent in Tanzania through production and distribution of brands like Tusker and Serengeti Lager.
FCC’s action, however, signals that Serengeti has struggled to grow earnings and market share.
The subsidiary made a loss of Sh1.1 billion in the year ended June 2014 when it had net liabilities of Sh1.8 billion, according to EABL’s annual report.
EABL carries Serengeti in its books at a fair value of Sh2 billion, disclosing that it paid a premium of Sh2.9 billion in the transaction now under investigation.