Diageo To Buy Additional 118.4 Million Shares In EABL

Diageo UK, through Diageo Kenya, its wholly owned indirect subsidiary, announced that it served notice on East African Breweries Plc (EABL) of its intention to acquire an additional 15.0% stake.

This will bring its shareholding in EABL to 65.0%, through a tender offer made to minority shareholders.

Diageo will apply to the Capital Markets Authority (CMA), for an exemption from the requirement to make a Take-over Offer, and EABL will remain listed in the Nairobi Stock Exchange (NSE). In the terms of the transaction.

Diageo intends to acquire additional 118.4 mn shares, which will bring its total shareholding at EABL Plc to 514.0 mn shares, representing 65.0% shareholding, from the current 395.6 mn shares, representing 50.0% shareholding.

Diageo will purchase each share at Kshs 192.0, which represents a 39.1% premium on the EABL’s stock price of Kshs 138.0 a day before the announcement.

The tender offer if approved by the concerned regulatory bodies will open on 30th January 2023 and close in two phases; with the first offer closing on 17th February 2023 and the second closing on 10th March 2023.

As per results for the year ended on 30th June 2022, EABL had an Earnings per share of Kshs 15.0. Using the closing trading price of Kshs 138.0 on 13th October 2022, a day prior to the announcement, this translated to a P/E multiple of 9.2x.

The tender price of Kshs 192.0 will represent a P/E multiple of 12.8x. Additionally, the tender price represents an implied Total Enterprise value to unadjusted EBITDA multiple of 5.7x.

The move by Diageo to increase its shareholding in EABL reflects the strategic importance of EABL to the group, being a manufacturing sector market leader in the East African region.

EABL continues to exhibit a strong financial performance evidenced by a Profit After Tax (PAT) of Kshs 15.6 bn in the year ended 30th June 2022, representing a 123.7% increase from Kshs 7.0 bn recorded in the year ended 30th June 2022.

Using the average equity and assets of EABL, Return on average Equity came in at 75.5%, from 48.3% recorded in the year ended 30th June 2021, while its return on average Assets increased to 14.8% from 7.4% in the ended 30th June 2021.

The Group also announced a final dividend per share of Kshs 7.25, adding to the interim dividend per share of Kshs 3.75 issued in H1’2021.

“We expect the proposed tender offer to continue to support EABL’s share price which rallied by 23.2% to Kshs 170.0 on 14th October, from Kshs 138.0 on 13th October 2022. Key to note, the stock rallied to a YTD gain of 2.7%, reversing the YTD loss of 16.6% as at 13th October 2022. “