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.