Diageo pays €20m for South African drinks firm
Published 03/04/2015 | 02:30
Irish-listed drinks giant Diageo is paying $22m (€20m) to buy out the remaining 50pc interest of a drinks business which it did not already own.
The company, United National Breweries, is a brewer of sorghum beer, a traditional drink of the Zulu people which contains up to 8pc alcohol.
Diageo already owns half of the South African firm and is paying up to $36m to buy the remainder from its partner Pestello Investments with an initial payment of $22m and a potential earn-out payment of up to $14m.
Pestello Investments is owned by Indian businessman and politician Vijay Mallya. Mr Mallya, who primarily made his fortune in the liqour business, is one of India's richest people with a net worth estimated at $750m.
The transaction is conditional on (among other things) consent from the South African competition authority and is expected to complete in this fiscal year.
Diageo, which owns internationally popular brands such as Guinness and Smirnoff, had already acquired a 50pc stake in United National Breweries at a reported cost of $36m in 2013.
A statement from Diageo said: "Once completed, this transaction will give Diageo control of the leading traditional sorghum beer business in South Africa, including the ability to make investment decisions to support the continued growth of United National Breweries brands in the sorghum beer category."
Phil Carroll, an analyst at UK stockbroker Shore Capital, said: "This is a small transaction and is not material to the Africa division's or the group's performance but is interesting to the extent of the valuation paid and seeing Diageo take the opportunity to continue to build its asset base in Africa."
Diageo has focused its growth efforts on Africa and other emerging markets in recent years, spending billions snapping up assets in China, Brazil, India and elsewher.
It has also let go of some of its established markets brands, such as Bushmills Irish whiskey. Bushmills was sold to Mexican tequila and spirits maker Jose Cuervo for $408m and full control of the Don Julio tequila brand at the end of last year.
However Diageo has been hit by volatile trading in emerging markets, forcing chief executive Ivan Menezes to embark on a cost-cutting drive in a bid to save £200m a year by June 2017.