Diageo eyes exit from East African beer market with EAB stake sale

Diageo’s potential sale of its 65% stake in East African Breweries (EAB) signals a wider retreat from the African beer sector. The move could reshape East Africa’s beer market and free up cash for debt reduction and shareholder returns.

The fact that Diageo has appointed Goldman Sachs and Bank of America to evaluate the future of its 65% stake in East African Breweries points to the probability that it will continue to pull out of beer in the continent.

Over the past few years, Diageo has exited several African markets. The company has sold its interests in Guinness Ghana, Guinness Nigeria, Guinness Cameroon, Seychelles Breweries, and Meta Abo Brewery in Ethiopia. But at each stage, it has kept firm control of the Guinness brand, which it intends to retain as a core asset.

Diageo announced just after Christmas that it had launched its “Accelerate” programme to generate US$3 billion in annual free cash flow by 2026, plus making significant disposals of underperforming assets.

Asset valuations

Previously, it had been speculated that Diageo could sell off its control of the Royal Challengers Bangalore cricket franchise, which could be worth up to US$2 billion, and now it seems that it wants to unload EAB.

EAB, which reports its annual results on Thursday, operates in Kenya, Uganda, and Tanzania, and distributes to more than 10 African countries. It owns significant brands such as Tusker, Bell Lager, Kenya Cane, plus brewing and distributing Guinness under licence.

Analysts estimate EAB to be worth US$2.79 billion, which is significantly higher than its current valuation on the Nairobi stock market, so Diageo’s holding could realise up to US$2 billion.

Implications for shareholders and the market

That could pave the way for debt reduction and possibly further share buybacks to enhance shareholder value.

According to Bloomberg, potential buyers could include Heineken, Castel and AB InBev.

If a sale comes to fruition, it will drastically alter the beer sector in East Africa.

EAB is dominant in Kenya and holds a 14% stake in the rapidly growing Tanzanian market. A new owner willing to invest more in beer than Diageo, which sees it as peripheral to its global spirits interests, could drive expansion into the premium and craft segments, which are gaining traction among urban millennials.

Leadership and strategy under scrutiny

Diageo’s interim CEO Nik Jhangiani is bound to come under pressure to reveal more of the group’s strategic plans when he announces the company’s full-year results next Tuesday.

Meanwhile, the board is continuing its search for a permanent successor as CEO to Debra Crew, who left the company by mutual agreement earlier this month.

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