SABMiller’s comeback hits a snag

By Kenneth Kwama

Brewing giant SABMiller’s planned comeback to the Kenyan market could have hit a brick wall.

The venture is stifled by tough legal and operational bottlenecks, which could have either forced SABMiller back to the drawing board, or led to the shelving of the entire project.

Frustration peaked last week at a Nairobi hotel, where some of the company’s top brass, led by Managing Director and Chairman of the South African Breweries Limited (SAB Ltd) Norman Adami, were said to have failed to get a ‘viable entry point’, after several meetings with a number of players operating locally.

And though the company’s head office, based in London, did not respond to enquiries on whether its top executives were actually in Kenya prospecting for possible deals, it later sent a message saying it had no intentions of coming back to the Kenyan market.

Guiness, EABL products ready for the market. Photo: file/standard.

"Regarding your enquiry about SABMiller’s plans in Kenya, I can confirm that contrary to recent reports, it’s business as usual for us in Kenya; and that East African Breweries will continue to brew and distribute our brands in the country," read the statement sent by Nigel Fairbrass, SABMiller’s head of media relations.

Despite the denials, the company’s body language betrays an entity preparing for a serious assault on the local beer market.

Besides hiring a local public relations firm to oversee its activities in Kenya, last week’s visit by the company’s executives was the second one in as many months.

All are welcome

Contacted, East African Breweries Ltd (EABL) said any player willing to enter the Kenyan market is welcome, "…as long as they abide by the rules."

"Whether SABMiller is coming to the market or not, our position has always been the same. We will continue putting consumers at the front of what we do. That will continue to be our strategy," said EABL’s Marketing director, Debra Mallowah.

Continued denials by SABMiller that they are planning a fresh venture in the country raises a pertinent question: Why did the company hire a PR company – Tel Em PR – and how can it explain the recent interest by its executives in the Kenyan market, if it really has no intentions of coming back?

Frankly, the move could ignite one of the most contentious proxy fights ever in local business history.

The real answer to these questions could be buried in the details of an injunction SABMiller filed in a UK court, seeking to stop EABL from terminating a brewing and distribution arrangement the two companies signed in 2002.

The 2002 pact between SABMiller and EABL ended a price war that had kept beer prices in the two countries still for five years.

Under that arrangement, EABL would own 20 per cent of Tanzania Breweries Limited (TBL) where SABMiller also owns a 52.83 per cent stake. A key aspect of the agreement was that TBL would brew and distribute EABL’s products under licence in Tanzania, and EABL closed down its brewing and distribution operations in Tanzania. SABMiller also closed its operation in Kenya.

Prohibitive clauses

It is emerging that the contract contains clauses that prohibits SABMiller from getting back into the Kenyan market with similar restrictions for EABL in the Tanzanian market.

Disregard for these stipulations by SABMiller could expose it to potential lawsuits from its rival, and start a corporate drama never witnessed before in Kenya.

To avoid conflict, SABMiller has to wade through some potentially hard decisions. The first option, according to an industry expert who did not want to be named to avoid straining relationship with the two companies, is for SABMiller to negotiate with EABL for it to relinquish the 20 per cent shareholding it holds in EABL’s subsidiary — Kenya Breweries.

This would call for EABL to also relinquish its 20 per cent shareholding in TBL, thus setting both companies free to pursue independent agendas in the two markets. But this seems impossible, as SABMiller has already gone to court to stop EABL from backing out of the Tanzanian arrangement.

EABL had wanted to cancel the pact with TBL, and take a stake in Serengeti Breweries Ltd, Tanzania’s second-largest brewer, but SABMiller opposed it, saying it jeopardise its market position in Tanzania’s growing beer market.

SABMiller’s other option is to buy out a beer company that is already operational or acquire a stake in a company. So far, three viable options have been floated. The companies include Ozzbeco Ltd, which brews Sierra range of alcohol, Maxam Ltd, which distributes of Heineken beer, and Keroche Industries Ltd.

Ongoing negotiations

Although Financial Journal could not confirm whether there were any ongoing negotiations with the three companies, the Managing Director of Keroche, Tabitha Karanja a few months ago discounted questions that "…Keroche was not planning to sell its business but would sell to Kenyans if it had to do so."

With Keroche out of the equation, SABMiller has only two viable options Ozzbeco and Maxam Ltd. The former, which brews Sierra Amber and Sierra Blonde, is owned by Wilfred Murungi, a billionaire who loathes controversy. The Murungi family also owns Mastermind Tobacco.

The bad news for SABMiller is that Murungi seems contented with what he has. "He is content with what he has and it would be difficult to convince him to sell," says our source.

The other alternative, Maxam Ltd is associated with businessman Ngugi Kiuna, whose only known experience in the alcohol industry being distribution of Dutch flagship beer, Heineken.

Despite its strong distributorship networks, Maxam doesn’t have a brewery and value chain management abilities that SABMiller could be looking for.

Among largest brewer

Kiuna has been in the limelight before, as the chairman of Rift Valley Railways steering committee. He serves on the boards of many companies, and is also one of the 29 founder members of Tran Century, the country’s richest and most well-known investment club with stakes in firms like RVR, East African Cables, Kenya Power & Lighting Company and Avery.

SABMiller is one of the world’s largest brewers and has brewing interests and distribution agreements on six continents.

At a presentation to the International Competition Network’s conference in Zurich last month, a competition expert said SABMiller’s growth strategy in Africa had been reliant on anti-competitive cartel arrangements with powerful partners.

Prof Frederic Jenny speculated that SABMiller would not have been able to implement its continental growth strategy if there had been a strong regional competition authority in Africa.

The company was founded in South Africa in 1895 as South African Breweries (SAB).

Its operations were mainly limited to Southern Africa.

SABMiller is one of the largest breweries in the world. The battle for the Kenyan market could just be starting, but whatever decision the executives reach, there is only one certainty: Blood will certainly be spilt.

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