Heineken and Diageo further cut their business ties

Is the recent asset swap between Heineken and Diageo a sign that brewers’ promiscuous days are over? Diageo and Heineken announced on 7 October 2015 that they have agreed to unbundle their ownership ties related to their beer businesses in Ghana, Jamaica, Malaysia and Singapore, resulting in a cash payment of USD 780.5 million to Diageo.

The move is the latest in a series of similar restructuring moves by Diageo, which sold its South African and Namibian assets to Heineken for GBP 128 million (USD 195 million) in July 2015.

This time, Heineken is seeking to consolidate its beer businesses in Southeast Asia and the Caribbean, while Diageo will come away with fuller control of Guinness Ghana Breweries Limited.

Heineken will acquire Diageo’s 57.87 percent stake in Desnoes & Geddes Limited, the Jamaican brewer of the Red Stripe and Dragon beer brands, which will give it a 73.32 percent stake. Next, Heineken will make an offer for the remaining shares it does not already own.

It will also obtain the licensing and distribution rights to Red Stripe and Dragon in Britain, Canada and the U.S. from Diageo as of January 2016, Heineken said.

Further, Heineken will acquire Diageo’s 49.99 percent stake in GAPL Pte Limited, a distributor in Singapore and Malaysia, giving it full ownership of the company.

In return, Heineken will sell its 20 percent holding in Guinness Ghana Breweries Limited to Diageo. After the deal, Diageo will own 72.42 percent of Guinness Ghana Breweries.

Although the transaction is priced at USD 780.5 million, it is basically pint sized compared with AB-InBev’s USD 104 billion takeover of SABMiller. For example, Ghana is a relatively small African market, with total beer production in 2014 amounting to 1.5 million hl, of which SABMiller brewed about 600,000 hl, giving it a market share of 48 percent.

Nevertheless, it is a good indication that once MegaBrew is bedded down, the remaining deals will be small and few.

Observers agree that while the severing of ties between the two companies is symptomatic of the current fashion in corporate strategies, others say it will also help Diageo reduce its debt burden. Plus it will offset some of the losses from its purchase of 26 percent of India’s United Spirits last year for GBP 1.12 billion (USD 1.7 billion), which has so far only netted GBP 53 million (USD 81 million) in annual profit.