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The Globe and Mail

Diageo's African arm in $225-million Kenya deal with SAB

Diageo PLC's East African Breweries division has agreed to buy the final 20-per-cent stake in Kenya Breweries from rival SABMiller's African unit, breaking up a cross-shareholding and distribution agreement in the region between the two drinks groups.

London-listed Diageo, which makes African beers such as Tusker and Windhoek, on Monday said its East African Breweries arm would pay SABMiller's African unit for 15.5-billion shillings ($225-million U.S.) for the 20-per-cent stake that it did not already own.

In turn, East African Breweries will sell its 20-per-cent stake in SABMiller's neighbouring Tanzania Breweries through a public offer as part of a broader move to unwind marketing, brewing and distribution agreements in the region.

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The two rival drinks groups agreed a deal in 2002 whereby East African Breweries took a 20-per-cent stake in Tanzania Breweries and SABMiller held a similar stake in Diageo's Kenyan division.

The deal allowed Diageo and SABMiller to brew, distribute and promote each other's brands in Kenya and Tanzania, respectively.

"This is the next stage in our development of following an independent strategy in that region," Diageo said of the move.

Monday's deal means that Kenya Breweries will stop brewing and distributing SABMiller's brands - such as Castle Lager and Peroni - in Kenya. While Tanzania Breweries will cease doing the same for Diageo's brands in Tanzania.

The unwinding of the cross-border agreement was sparked by East African Breweries' July 2009 purchase of a 51-per-cent stake in Serengeti Breweries, a Tanzanian beer maker, for $60.4-million.

Diageo has a strong presence in Africa, where it is the fourth largest operator in the beer market by volume, with a 13-per-cent market share. Its beers include Senator Keg and Tusker in Kenya and Windhoek in South Africa, while Guinness is popular in many west African countries including Nigeria, Ghana and Cameroon.

Consumer product groups' interest in Africa have increased due to the region's improved political and currency stability, economic growth and a burgeoning middle classes.

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Diageo's Africa business has roughly doubled in size in the past 5 years to £1.2-billion in net sales. Over the past five years, African sales have grown by about 5 percentage points to represent about 12 per cent of total net sales.

Tusker was first brewed in 1922 by two brothers, "one of whom was later killed by a rogue elephant - hence its name Tusker", according to Diageo. Senator Keg, a barley beer, "is a high quality, low priced beer providing an affordable alternative to illicit brews".

Diageo shares on Monday rose 1p to £12.92, whilst SABMiller's London-listed shares also edged up 6½p to £22.20.

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