The planned sale of the British multinational Diageo’s 65 percent stake in East African Breweries Limited (EABL) for an estimated $2.2b will remain on ice pending an investigation by the Comesa Competition Commission into cross-shareholding by dominant conglomerates in the common market.
Speaking to journalists recently, the regional competition watchdog chief executive officer, Willard Mwemba, said that while there is nothing inherently wrong with cross-shareholding, it may have potentially harmful patterns.
The details, along with the transaction, are not something the watchdog can comment on until its investigation is complete.
‘. there is an ongoing investigation, generally for several beer companies that have cross-shareholding in each other as minority or majority shareholders, which is not a wrong thing. What becomes wrong is what you do with cross-shareholding,’ he said.
Diageo, however, has yet to notify the Comesa Competition Commission, which regulates mergers and acquisitions in the 21-member Comesa states, of the planned sale. Cross-shareholding is where companies invest in each other, creating common ownership and potentially softening marketplace competition.
While it may lead to benefits like attracting more investment, its anti-competitive effects concern antitrust authorities.
For instance, French beverage giant Castel owns a 38 percent stake in AB InBev’s African beer operations outside of South Africa, while AB InBev has a 20 percent shareholding in Castel’s African brewing unit through a 2001 partnership between Castel and SABMiller.
‘There is a pattern of behavior in the market that shows that as a result of cross-shareholding, there can be some coordination,’ Dr Mwemba said in Nairobi, Kenya, during the Comesa Competition Commission annual press conference last month.
Diageo holds a controlling stake in EABL, with subsidiaries in Kenya, Uganda, and Tanzania, which represents the UK conglomerate’s largest spirits business and brewing asset on the African market.
Following a review in July of its majority stake in the cross-listed EABL, Diageo appointed Goldman Sachs and Bank of America to explore a potential divestment from East Africa through a model that is light on assets.
However, the deal now rests on the Comesa Competition Commission probe.
Antitrust experts observe that the transaction is walking right into the minefield of past mega deals flagged as anti-competitive, but also note watchdogs have their work cut out to stop entrenchment by any of the dominant giants, Anheuser-Busch InBev, Castel Group, and Heineken.
‘Our beer industry is highly concentrated; it’s hard not to find these three in the mix. So the Comesa [Competition Commission] has a lot of hard work to do,’ says Ms Pheona Wall, a competition lawyer.
‘Guided divestiture is what the Commission could do, to approve with limitations on shareholding. Like it has to be between 20 percent and 25 percent,’ she adds.
While confirming that its Kenya and Uganda operations remain among the best performing in the Diageo stable of beers and spirits on the continent, the British giant denies it is considering the sale of its East African business.
‘Diageo increased its shareholding to 65 percent just two years ago,’ says David Kimondo, EABL’s head of communications. ‘All this talk of exiting East Africa is speculation, and we do not respond to speculation.’
Delayed approval of the transaction could scuttle Diageo’s gradual exit since 2022 from African markets, which has seen the company complete the sale of its interests in Seychelles Breweries in January this year and Ethiopia’s Meta Abo Brewery in 2022.
Diageo also divested its stakes in Guinness producing operations under license on the West African front in Ghana, Nigeria, and Cameroon.
The Comesa Competition Commission probe presents a significant setback for Diageo, which is still smarting from a $750,000 settlement imposed by the watchdog in September after establishing that the company engaged in anti-competitive business practices in Uganda, Zambia, and Eswatini.
The Commission indicated that Diageo had terminated certain distribution arrangements in Eswatini and Zambia and revised its agreement in Uganda to remove provisions that restricted competition.
On September 30, Diageo’s lawyer James Edmunds signed the agreement imposing the fine.
Dutch multinational Heineken was fined $900,000 in March after investigations into market allocation practices through distribution agreements and arrangements with competitors were found to have violated Comesa Competition regulations.
Since 2021, the Comesa Competition Commission has sparred with Heineken, Diageo, Castel, and Anheuser-Busch InBev (AB InBev), launching investigations over the violation of regulations that relate to restrictive business practices and prohibited practices such as single branding, territorial restrictions in the market, and resale price maintenance.
Industry analysts have said since the announcement of the possible sale, the favoured potential buyers could include Heineken and Castel – two giants already dominant in southern Africa.
AB InBev, which owns Uganda Breweries, is also rumoured to be interested in snapping up the Diageo stake.
However, such an acquisition, experts say, sets up a near monopoly.
‘In Uganda, we have [AB InBev subsidiary] Nile Breweries, which is a rival of Uganda Breweries. Imagine a situation in AB InBev were to buy the EABL stake. This could mirror what happened in the SABMiller-Castel deal,’ says Wall.
In Tanzania, AB InBev owns Tanzania Breweries, the direct rival of Diageo-owned Serengeti Breweries.
One of the biggest cross-share cases in Comesa is the SABMiller-Castel deal in 2012, in which the former wanted to buy Castel out, seeking to end a strategic alliance entered into in 2001 when Castel acquired a 38 percent stake in SABMiller.
On its part, SABMiller took a 20 percent stake in Castel’s Africa beer and soft drinks, which, in a 2017 landmark decision, was flagged by Comesa Competition Commission as a cartel that raised some competition concerns.
Heineken operates in several Comesa member states, including Burundi, DR Congo, Egypt, Ethiopia, Rwanda, and Tunisia, while Castel is present in DR Congo, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia, and Zimbabwe through subsidiaries.
Competition law experts argue that restrictive clauses in the market can lead to concentration and lock out competition, as seen in AB InBev’s market presence in Africa.
AB InBev operates in South Africa, Eswatini, Lesotho, Namibia, Botswana, Mozambique, Zambia, Tanzania, Uganda, Ghana, Nigeria, and Mauritius.