Dutch brewer Heineken failed to secure the rights to acquire a 43.77 per cent stake in the firm that distributes Amarula and Viceroy from the Kenyan government, exposing the multinational to a bidding war for the shares valued at Sh4.1 billion.
The nation has established that Heineken, which has a 55 per cent stake in KWA Holdings East Africa Limited (KHEAL), has no pre-emptive right agreement with the Kenya government, which could have forced the State to first offer the shares to the Dutch brewer.
The pre-emptive rights require that the shares being sold cannot be offered in the open market until existing shareholders have been given a chance to invest.
A source familiar with the deal says South Africa’s beverage firm Distell Group, which was last year acquired by Heineken, failed to insert the pre-emptive clause in a shareholder agreement with the government after it became a majority shareholder in KHEAL following its acquisition of an extra 26.4 percent stake from Centum Investment.
It acquired the Centum stake in 2017 for Sh1.1 billion, giving it majority control, and its omission of the pre-emptive rights has upset Heineken whose ambition is to fully acquire the Kenyan unit and avoid a hostile co-owner.
Majority shareholders often push for the pre-emptive rights to maintain control by avoiding dilution in the event of new shares being issued and avoid aggressive partners from sale of existing stocks.
“They (Heineken) don’t have pre-emptive rights and will have to bid for the stake like everyone else,” said the source, who asked not to be named because the discussions are confidential.
“It was a huge omission for Distell not to have pushed and included the pre-emptive rights the moment it became majority shareholders in Kwal. Heineken was puzzled.”
Distell lacked the muscle to push for the right to preempt the sale of shares before 2017 when it was the minority shareholder behind the government and Centum, with its initial 26 percent stake that it had acquired from State for Sh860 million.
The State now seeks to fully exit KHEAL, triggering a bidding war that looks set to attract the interests of private equity firms and high-net-worth investors to beer and spirits stocks as a relatively cheap way to benefit from growth in alcohol sales in emerging markets like Kenya.
The Privatisation Authority on Friday invited local as well as foreign investors to bid for the stakes.
This has opened the transaction beyond the government’s partner in the business –Heineken Beverages— which holds the majority stake.
The lack of pre-emptive rights has offered the State leverage in pursuit of a premium for the sale of the 43.77 percent stake through a bidding fight rather than direct negotiations with Heineken for the stake.
The State and Heineken have separate valuations for the stake.
The government valued the shares at Sh4.1 billion in the year ended June 2022, according to the latest available disclosures.
The value of the stake, which was raised from Sh3.4 billion in the prior year, is held through Kenya Development Corporation (KDC).
The government is also selling its 0.1 percent stake in Kenya Wine Agencies Limited (KWAL), the operating subsidiary that is owned by KHEAL.
Heineken Beverages was formed last year following Heineken’s buyout of South Africa’s Distell Group which last reported a much lower valuation of KHEAL compared to KDC’s disclosures.
Distell in 2019 said its 55.4 percent ownership in KHEAL was worth 223.6 million Rand (Sh1.6 billion at current exchange rates), indicating that the government’s stake was worth Sh1.2 billion.
KHEAL manufactures and distributes several brands of spirits, wines, ciders and fruit juice. These include Kibao Vodka, Hunter’s Choice, Viceroy, Amarula, Drostdy-Hof, Savanna and Yatta.
The Privatisation Authority has opened the transaction to all sorts of bidders including high-net-worth individuals who may want to hold the stake as a passive financial investment.
“Interested bidders must provide information that meets the following eligibility criteria … Evidence that the bidder or, in the case of a consortium, the consortium leader, is legally registered or incorporated,” the Authority said in a notice.
“In the case of individuals, copies of certified national identification cards, or passports for international bidders.”
International brewers are increasingly cementing their brands in big, emerging markets in Latin America and Africa, where demand for beer is growing.
Heineken’s acquisition of Distell marked the entry of a major brewer with local production in the Kenyan market that is dominated by East African Breweries Plc (EABL), a subsidiary of Diageo Plc.
Diageo last year completed the purchase of an extra 14.97 percent stake in EABL in a deal worth Sh22.7 billion.
EABL posted net sales value growth for its first half to the end of December, riding on brands such as Tusker beer, Gilbeys and Johnnie Walker.
Bidders for KHEAL are required to demonstrate financial capacity to close the deal and will be required to provide a bid security of Sh10 million or its equivalent in US dollars and which will be valid for 180 days from the tender opening date.
Expressions of interest close on April 5. KWAL started operations as a 100 percent parastatal before a divestiture that began with the 2014 sale of an initial 26 percent stake to Distell Group.
The sale of the government’s stake in the wines and spirits manufacturer is part of plans to raise funds through divestiture in multiple firms where the State has substantial or full ownership.
The government has also announced the sale of its stakes in Kenya Safari Lodges, Mt Elgon Lodge Limited, Golf Hotel Limited, Sunset Hotel and Kabarnet Hotel.
The government, through KDC, holds 5.2 million units of shares in the five hotels whose value rounded off to Sh671.9 million as of June 2022.
The five hotels and the Development Bank of Kenya were last month added to a list of 11 other entities the government is targeting to sell.
Other entities scheduled for privatisation include the Kenya Literature Bureau, Kenyatta International Convention Centre (KICC), Kenya Seed Company, Kenya Pipeline Company, and the New Kenya Co-operative Creameries.
