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SABMiller, Diageo divorce set to aid competition
July 31, 2009
 By Ann Crotty
Competition looks set to break out once again in the Tanzanian and Kenyan beer markets with the possible dismantling of the joint venture arrangement between two of the world's largest drinks groups, SABMiller and Diageo.
Earlier this week, SABMiller said it was seeking a UK court injunction to stop Diageo from terminating a brewing and distribution arrangement that had been entered into with SABMiller in 2002.
In terms of that agreement Kenyan-based East African Breweries Limited (EABL), which is controlled by Diageo, acquired a 20 percent shareholding in Tanzania Breweries Limited (TBL), which is 50.01 percent controlled by SABMiller.
A key aspect of the agreement was that TBL undertook to brew and distribute EABL's products under licence in Tanzania and EABL closed down its brewing and distribution operations in Tanzania. SABMiller closed its operation in Kenya.
After initial hesitation by the Tanzanian competition authorities, both governments agreed to the cross-shareholding arrangement. It appears that the competition authorities in Tanzania did recommend against allowing the transaction but the Tanzanian government, which had a stake in TBL, gave the necessary approval.
The competition law in Tanzania has been subsequently amended and the cabinet no longer has the power of approval for such transactions. Decisions on such transactions now rest entirely with the competition authorities.
The Tanzanian competition authorities were not available yesterday to comment on the latest developments or on whether EABL would have to seek their approval for its proposed acquisition of Serengeti, Tanzania's second-largest beer maker.
The 2002 alliance between SABMiller and Diageo ended a price war that had kept beer prices in the two countries stagnant for five years.
SABMiller's decision to take action against Diageo seems to have been prompted by news that EABL had reached a conditional agreement to buy Serengeti for an undisclosed sum.
Yesterday a spokesman for SABMiller referred to a statement in which it was noted that the group was aware of media reports of a potential acquisition by EABL and considered that this action represented a fundamental breach of undertakings to TBL and SABMiller.
The statement said that EABL had negotiated a competitive deal while remaining as a shareholder of TBL and a member of TBL's board.
"In the light of this, TBL and SABMiller are seeking an injunction against EABL's actions and proposed transactions via a court application in the UK courts, pending the commencement of arbitration proceedings if the parties cannot resolve their differences amicably."
The statement noted that since the 2002 arrangement was implemented TBL had grown the EABL brand portfolio in Tanzania at a compound rate of 12.7 percent. Diageo did not respond to Business Report's requests for a comment.
At a presentation to the International Competition Network's annual conference in Zurich last month, a leading competition expert said SABMiller's growth strategy across Africa had been heavily reliant on establishing anti-competitive cartel arrangements with a variety of powerful partners.
Professor 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.
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