EABL's Parent Company Diageo Could Exit Kenyan Market Amid New Proposed Alcohol Regulations
- British multinational alcoholic beverage company Diageo is mulling exiting the Kenyan market amid harsh proposed tax measures
- The multinational firm appointed a private equity fund to assess the future of its majority stake in the East African Breweries Limited (EABL)
- If the beverage company sold its shares in EABL, it would earn billions, with potential bidders including AB InBev and Heineken NV
TUKO.co.ke journalist Japhet Ruto has over eight years of experience in financial, business, and technology reporting and offers deep insights into Kenyan and global economic trends.
British beverage giant Diageo has appointed Goldman Sachs and Bank of America to assess the future of its majority stake in the Nairobi-based East African Breweries Limited (EABL) in light of the company's growing challenges in Kenya, its largest East African market.
Source: Twitter
This follows the National Authority for the Campaign Against Alcohol and Drug Abuse (NACADA)'s proposed tough regulations for the sale of alcohol in the country.
If implemented, the regulations would restrict the sale of alcohol to pubs, bars, and licensed stores, and raise the legal drinking age from 18 to 21.
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The company's operations in Kenya also face frequent policy changes, including tax uncertainties.
Higher taxes have accelerated the departure of global corporations like Johnson & Johnson and Procter & Gamble in recent years, and analysts predict that Diageo could follow suit.
"Large corporations frequently complain about the volatility of Kenya's tax system. Given the pressure Diageo's investors are putting on the company to sell off assets, all of this could pave the way for Diageo to sell its stake in EABL," Ian Mwangi, an economist, told Semafor.
How much will Diageo fetch if it sells EABL?
According to the Kenya Wall Street, if the beverage company sold its 65% ownership in EABL, it could earn $2 billion, with potential bidders including AB InBev, Heineken NV, and Castel Group.
This action would coincide with Diageo's efforts to reduce expenses by $500 million (KSh 64.8 billion) and make significant asset sales by 2028 to free up $3 billion (KSh 388.5 billion) in cash flow in its global operations.
Following the release of its preliminary annual results on Tuesday last week, Diageo's stock price improved, in part because of the cost-cutting strategy that was unveiled in May.
Source: UGC
How will NACADA rules affect EABL?
Alex Muchiri, a tax and finance analyst based in Nairobi, added that Diageo would be extremely concerned about Kenya's new alcohol rules.
Because the drinkmaker depends on these establishments for its revenue and has made significant investments in delivery platforms, a prohibition on the sale of alcohol in supermarkets, restaurants, and online would particularly hurt it.
"Since EABL would significantly improve cash flow and is a strong contender for sale within the Diageo's portfolio, I believe a sale is likely. They might decide to maintain it, though, given the consistent returns it delivers," he explained.
What did NACADA say?
NACADA dismissed reports that it had banned the sale of alcohol online, home deliveries, and celebrity endorsements.
This followed criticism from Kenyans on social media for the tough measures.
NACADA described the measures unveiled by Interior CS Kipchumba Murkomen as policy proposals, not laws.
Proofreading by Asher Omondi, copy editor at TUKO.co.ke.
Source: TUKO.co.ke
