EABL takes beer wars to SABMillers doorsteps East African Breweries Limited bottling plant. The brewer has been allowed to buy a controlling stake in Serengeti Breweries. Photo/FREDRICK ONYANGO By Mwaura Kimani (email the author) Your Email Message Send Cancel Posted Friday, July 30 2010 at 00:00 Tanzania has allowed East African Breweries Limited to buy a controlling stake in Serengeti Breweries, handing the Kenyan firm a key weapon in the ongoing battle for control of the neighbouring countrys beer market. The green light by Fair Competition Commission (FCC) gives EABL a firm footing in the Tanzanian market where a protracted battle with South Africas SABMiller has been pulling back its operations. Serengeti Breweries Limited (SBL) is Tanzanias second largest brewer with at least 17 per cent of the countrys total beer market. EABL announced the deal on Thursday but said it was subject to other regulatory conditions, which it did not specify. EABL is committed to growing SBLs portfolio and footprint in Tanzania and beyond as well as make SBL an integral part of our operations in East Africa, it said although it did not say how much it had paid for the 51 per cent stake. People familiar with the matter said the FCC has barred the Kenyan brewer from closing the SBL plant in Tanzania aiming to protect local jobs as the region moves into the Common Market platform. They are also required to retain SBLs key brand Premium Serengeti Lager among other brands, said a source. The Acquisition is of strategic importance to EABL and British beer giant Diageo who have a controlling stake in the Kenyan brewer. In the past four years, it has seen both sales volumes and profits drop in key Kenyan markets evens as cash continued to pile in its vaults. A drop in volumes in the Kenyan market that accounts for about 77 per cent of EABLs revenues has been significant, especially because it happened at a time when the brewers Uganda and Tanzania operations came under a wide range of market pressures that slowed down growth.Last year, Uganda Breweries, in which EABL has a 98.2 per cent stake, reported a two per cent drop in volumes and a 39 per cent fall in operating profit, a situation attributed to cost pressures. In Tanzania, the Kenyan brewer found itself at the centre of a legal dispute with SABMillers subsidiary TBL over a seven-year marriage that was on the rocks. EABL joined the TBL board in 2002 under an arrangement that gave the Kenyan brewer a 20 per cent stake in the SABMiller-owned operation. SABMiller gained a similar stake in EABLs Kenya subsidiary in a deal that saw the South African brewer wind up its operations in Kenya. The two firms also agreed to manufacture and distribute each others flagship brands but EABL argued that TBL had failed to keep its part of the deal. The dispute saw EABLs sales volumes in Tanzania decline by 14 per cent as the rivalry turned East Africa into battle zone between SABMiller and Diageo, which has a 50 per cent stake in EABL. SABMiller owns 60 per cent of Nile Breweries in Uganda where a vicious battle for market dominance has been raging for nearly three years. More recently, SABMiller front-run EABL in Southern Sudan with the opening of a Sh2.9 billion plant in Juba in an attempt to consolidate its presence ahead of the competitor. In November last year, EABL announced it had courted SBL as its sole distributors of its world-class spirit brands in Tanzania adding impetus to a long running battle with SABMillers Tanzania Breweries. Acquisition of SBL signals EABLs intention to intensify its activities in East Africa to grow profits and reduce its over reliance on the Kenyan market that has been showing signs of maturity. Kenyas largest manufacturer by market value grew its revenue to Sh18.6 billion in the last six months of 2009 on the back of improved sales of the Tusker and Guinness brands that also benefited from upward price adjustments last November. Yes, Kenya is our fortress but at the end of the day we are East Africa Breweries and we must play the East Africa game, said Mr Seni Adetu, the group managing director in February. Winning the Tanzania round now leaves EABL to focus on the Uganda market where SABMiller has announced plans to invest Sh1.2 billion in a malting plant to process locally grown barley. EABLs marriage to TBL was formalised in 2002 agreement that saw SABMiller cede a 20 per cent stake in TBL to the Kenyan brewer in exchange of a similar stake in Kenya Breweries. The deal saw SABMiller leave Kenya where it had put up a bruising market share battle against EABL. The latter also left the Tanzanian market in return. Under the agreement, the two firms were to manufacture and distribute each others flagship brands in their separate territories. The agreement specifically provided that TBL would grow EABLs flagship Tusker brand in Tanzania among other brands as EABL did the same for SABMillers Castle brand in Kenya. In the last five years, however, EABL increasingly got impatient with the marriage and embarked on a plot to end it on the grounds that TBL had breached the deal. In May 2007, when the contract came up for renewal as provided for in the agreement, EABL stepped back and later cancelled it, quickly initiating a similar deal with Serengeti Breweries. The fight for the Tanzania beer market has recently sparked serious fights between TBL and SBL, who have been accusing each other of unfair competitive prices. In May, FCC ruled that TBL should pay SBL an equivalent of its five percent of annual turnover basing on the current audited accounts of the company. The decision by FCC comes as a salvage to SBL which has for nearly a decade complained of being excluded in the market through anti-competitive practice by TBL. Business Daily: *- Company Industry*|EABL takes beer wars to SABMiller MY TAKE: A stupid deal i can tell, why allowing an acquisition of 51%? didn't they learn from Precisionair? I am pissed off! Serebgeti beer might just disappear just like Kibo gold and Plisner Ice! I hate these guys!