Company Overview: eabl

EABL is the largest brewer in Eastern Africa and controls its primary market, Kenya with a 90% stake (Irungu, 2012). There is one other competitor, Keroche Breweries that currently holds a 3% of the formal beer market with an ambitious expansion plan targeting 20% of the market share in 2 years. The rest of the market is controlled by imported brands.

Table 4‑1: Kenyan Beer Market

Composition of Kenyan Beer Market
Rank	Company Name	Market Share
1.	Kenya Breweries Limited (EABL Subsidiary)	90%
2.	Keroche Breweries Limited	3%
3.	Imported Brands from International Breweries including; SAB Miller, AB-Inbev, & Heineken	7%

Source: Irungu (2012)

`In fiscal 2013, the company has consolidated net revenues of $685 million, a growth of 6% but net income dipped significantly by 37.5% to $80.5 million. The main driver of this decline was rise of financing expenses as a result of an acquisition drive by the firm. EABL has active operations in; Kenya, Uganda, Tanzania, and South Sudan.

The company acquired a 51% controlling in Tanzanian brewer, Serengeti Breweries for an all cash consideration of $61 million in 2011. A shareholder’s agreement allowed the company to acquire the remaining stake between February, 2014 and July, 2014. This move was instigated by a corporate drive to consolidate operations in its key markets.

In 2002, EABL had established a joint share-swap agreement with SAB Miller that gave the two companies respective shareholding in each other operations. EABL ceded a 20% stake in its main subsidiary, KBL while SAB Miller also ceded a similar stake in Tanzania Breweries (TBL). This agreement put an end to an escalating beer war that had turned nasty.

EABL sold off its 20% stake in TBL prior to acquiring the stake in Serengeti Breweries. SAB Miller also disposed off its 20% stake in KBL and entered the Kenyan market with an acquisition of a domestic company, Crown Foods and is engaged in distribution of its brands through this subsidiary.

The main brands under EABL’s docket included the iconic Tusker, Tusker Malt, Tusker Lite, Serengeti Premium Lager, Bell Lager, Pilsner, and Senator Lager (EABL, 2013). It has a joint-ownership arrangement with Diageo in distiller, UDV Kenya where it manufactures locally-oriented sprits including; Kane Extra, Jebel Gold, and Uganda Waragi.

EABL also undertakes distribution of beer and premium spirits from Diageo in the East African region. The main brands distributed in the region include; Guinness (manufactured under license), Johnnie Walker, Baileys Cream Liqueur, Smirnoff Vodka, Ciroc Vodka, Zacapa Rum, Tanqueray Gin, Don Julio, Talisker, and Ketel One Vodka (EABL, 2013).

Market Entry Strategy

Diageo made a market entry into the East African beer market by acquiring a 50.03% controlling stake in EABL in 2002. The stake was acquired through negotiations with some major shareholders who included influential people in the country. They agreed to sell their listed shares to a Kenyan-domiciled, Diageo subsidiary, Diageo Kenya.

It was effectively an open-market acquisition with agreements established between the shareholders. Diageo was unable to execute its strategic approach of establish a put option for acquiring the remaining stake as they were held by different entities for strategic reasons including the country’s social security firm, NSSF and various nominee accounts.

Essentially, Diageo’s stake has remained at those levels over the past decade and is unlikely to rise further. In 2011, the company extended a shareholder loan amount to $222 million to purchase the 20% in KBL held by SAB Miller and is expected to be repaid by 2016. Acquiring the stake in EABL provided it access to the three main East African markets.

They are; Kenya, Uganda, Tanzania, and recently South Sudan as it increases its market reach. Under the shareholder agreement with Serengeti Breweries, Diageo had the preemptive rights to acquire the remaining 49% in the firm directly or through an assigned subsidiary. Diageo has chosen to maintain its current stake while targeting newer markets.