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Namibia Breweries Deal Dynamics

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Namibia Breweries is set to acquire a 25% stake in the Sedibeng Brewery and further its stake in DHN Drinks by 9.5% after Heineken, Diageo plc and The Ohlthaver& List (O&L) Group of Companies, the controlling shareholder of Namibia Breweries Limited (NBS) decided to restructure their respective joint venture operations in South Africa and Namibia.

Picture1Brandhouse Beverages (Pty) Ltd (brandhouse) is a 50/50 distribution and cost sharing joint venture between Diageo and DHN Drinks (Pty) Limited (DHN). DHN is the entity which holds the licenses for the combined beer, RTD and cider portfolio of Heineken, Diageo and NBS. Heineken and Diageo each own a 42.25% stake in DHN with NBL owning the remaining 15.5%.

Diageo will sell its 42.25% stake in DHN to NBS and Heineken on the same terms so it will therebyincreaseHeineken’s stake from 42.25% to 75% and NBS’s holdingsfrom 15.5% to 25%. NBS will also buy the 25% stake that Diageo owns in the 4.5 million hector liter Sedibeng Brewery in South Africa, while Heineken will retain its existing 75% stake in the brewery. The total consideration payable by NBS to Diageo for shares in Sedibeng and DHN is R610 million.

Previously IJG estimated that a 15.5% share purchase in the Sedibeng Brewery would have cost NBS N$465 million based on an EV/hectoliter calculation. Thus the implied cost for a 25% stake in Sedibeng would have been N$750 million which makes the N$610 million offer seems reasonable

It is our view that the transaction will be 100% financed through debt, most likely through a South African banking institution and will be linked to jibar. If we assume that the debt will be issued at 8.5% (for arguments sake and which is a very generous yield), the additional finance charge will be N$51.85 million or 15.8% of FY14 profit before tax.

NBS and Heineken have formed a new joint venture in South Africa, which will focus on developing the beer portfolio and provides NBS with increased commercial control of its key brands in South Africa. As a result of the transaction and new agreement, which is subject to regulatory approval, the existing joint venture with regards to brandhouse, DHN and the Sedibeng Brewery will be dissolved ahead of the previously agreed termination date, April 2018. During the transition period, brandhouse will continue to operate as normal, and a transition agreement is in place between the three parties to ensure business continuity until Heineken and NBS complete the establishment of a new marketing, sales and distribution business in South Africa.

As part of the restructuring, Diageo will sell its 15% indirect shareholding in NBS to Heineken, increasing Heinekens indirect ownership to 29.9%. O&L will hold on to its 30.1% indirect stake with the balance being owned by local shareholders.Further, Diageo will acquire the remaining shares it does not already own in brandhouse, the beer and spirits sales and marketing joint venture in South Africa, which will become a wholly-owned subsidiary of Diageo

Picture2Diageo will receive a total net cash consideration of R2.5 billion while Heineken will pay a total net cash consideration of approximately R1.9billion to Diageo for the equity and debt positions it acquires in Sedibeng, DHN and NBL and Diageo. Completion of the transaction is expected in 4Q15 and is subject to customary regulatory approvals.

Diageo Dissolves Heineken Venture to Go Solo in South Africa

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SENS: Diageo Plc said it’s dissolving a joint venture with Heineken NV in South Africa and neighbouring Namibia three years earlier than planned so the world’s largest distiller can fully own its operations in those countries.

Diageo will receive about 128 million pounds ($199 million) from a series of transactions with Heineken and Namibia Breweries Ltd., the London-based company said Tuesday. The Smirnoff vodka maker will buy out the Dutch brewer’s stake in Brandhouse, a sales and marketing entity, while Heineken will focus on beer, ending a joint venture with Diageo that began in 2004 to sell spirits, beer and cider in Africa.

“Diageo does not want to continue sharing profits with their joint venture partners as their spirits products are growing faster than beer,” De Wet Schutte, an analyst at Avior Capital Markets, said by phone. “The read through is that spirits in South Africa is growing well.”

South Africa is Diageo’s fifth-largest spirits market by units sold, and its share of the market has increased from 26 percent to 40 percent over the past nine years, the company said. The region is central to Chief Executive Officer Ivan Menezes’ goal to boost the company’s sales from the African continent to 20 percent of revenue, from about 13 percent now.

“This is a positive move for Diageo,” Schutte said. “For Heineken, it leaves them hanging in a sense. As a smaller player Heineken may find it hard to grow market share.”

The joint venture began in 2004, and was reconfigured in 2008 for a 10-year term as the companies sought to counter the dominance in the region of SABMiller Plc, which controls more than 90 percent of the South African beer market.

Diageo was little changed at 1,820 pence at 9:30 a.m. in London, while Heineken rose 0.2 percent to 70.84 euros in Amsterdam.

Under the deal, Diageo is selling a 42 percent stake in DHN Drinks Ltd. and a 15 percent stake in Namibia Breweries to Heineken. Diageo will also sell a 25 percent stake in a brewery in Gautend, South Africa to the Namibian beermaker.

“Diageo has the necessary scale to move to the next stage of growth,” Diageo CEO Menezes said in the statement.

Namibia Breweries is set to acquire 25% stake in Sedibeng Brewery and further stake in DHN Drinks for N$610 million.

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NBS will buy Diageo’s 25% stake in Sedibeng, while Heineken will retain their current 75%. Diageo will sell their 42.25% interest in shares of DHN to Heineken and NBS on same terms so they will thereafter each hold shares in DHN in proportions 75%, 25% respectively. Total consideration payable by NBS to Diageo for shares in Sedibeng and DHN is R610 million.