NAIROBI: Beer maker East African Breweries Ltd (EABL) could be forced to cut its stake in Serengeti Breweries, leading to what could be a second-time unlucky run in Tanzania.
The Fair Competition Commission (FCC) of Tanzania has told EABL that it was cancelling an earlier approval to acquire a controlling stake in Serengeti, where it owns 51 per cent. Four years ago, a disagreement pushed EABL to buy back a 20 per cent stake of its biggest subsidiary, Kenya Breweries Ltd, then owned by Tanzania Breweries Ltd.
"The commission has issued a notice of an intention to revoke its own decision with respect to the merger. It was observed that, based on the rationale of the approval, the performance of Serengeti Breweries Ltd was not as per expectations of the commission," reads a statement issued by the commission.
The agency, equivalent of the Competition Authority of Kenya, accuses EABL of contravening the terms of the approval that was granted in 2010. Among the conditions set in the approval was that the acquisition would help Serengeti move its brands faster and gain market share – a reality that may not have been achieved.
East African Breweries acquired the stake in Serengeti after selling a stake it held in Tanzania Breweries, which is owned by its global rival and beverage manufacturer SABMiller. But it is SABMiller that has gained from the termination of the agreement between the two brewers, with analysts pointing out that Serengeti's market share has actually suffered.
The regional brewer has confirmed receiving FCC's notice in April, and went ahead to respond to the questions raised by the Tanzanian authority. The Group Corporate Relations Director Julie Adell-Owino said the firm was hopeful that the notice would be withdrawn after an upcoming formal hearing.
"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," she said.
It is unclear what options would be available to EABL should the outcome of the hearing be unfavourable. But the latest turn of events came even after EABL said it had 'provided the FCC with a full response to the statements made in the notice', implying that there might not be much left to discuss.
Meanwhile, EABL has announced the resignation of Andy Fennell as a director of the company, to be replaced with John O'Keeffe. It also appointed Jane Karuku as the new managing director of KBL to replace Joe Muganda who resigned to take up a similar position at the Nation Media Group.