Sechaba reduces stake in KBL

12 Aug 2018

Sechaba Brewery Holdings is set to reduce its stake in its money spinning subsidiary in a proposed share repurchase.

The byzantine transactions are the latest chapter of the negotiations that began in 2016 following Anheuser-Busch InBev’s acquisition of SABMiller Plc. Prior to acquisition, SABMiller Plc through SABMiller Botswana B.V held shares in Sechaba, which is an investment holding company with interest in Kgalagadi Breweries (KBL). Moreover, Sechaba held 60 percent shareholding in KBL while the remaining 40 percent was held by SABMiller Botswana B.V.

After AB InBev took over all of SABMiller’s interests in Sechaba and KBL, the local business operations were realigned with those of AB InBev, resulting in long negotiations non-alcoholic beverages segment. The Coca-Cola Company (TCCC) in 2016 announced its intention to acquire the stake of AB InBev in Coca Cola Beverages Africa (CCBA). While KBL was not part of CCBA, it operated its non-alcoholic ready-to-drink operations under the bottler’s agreements signed between KBL and TCCC. Following the announcement to take over AB-InBev’s stake in CCBA, TCCC terminated its bottler’s agreements with KBL.

The negotiations over CCBA concluded in July this year when Sechaba announced that AB InBev Africa, AB InBev Botswana, KBL, Strategic Alliance, along with TCCC and AB InBev, entered into a Master Purchase Agreement

What follows next is a web of complex transactions between the related companies. Since Sechaba holds 60 percent of KBL while AB-InBev Botswana (formerly SABMiller Botswana BV) holding the remainder, the two companies have a similar indirect shareholding structure in KBL’s dormant subsidiary called Beverage Manufacturers. The ownership structure of Beverage Manufactures is being reorganised from indirect to direct ownership, with KBL transferring 60 percent shareholding to Sechaba and 40 percent to AB InBev Botswana.

In another familiar setup, AB InBev Botswana with its 40 percent stake will still carry double voting rights in Beverage Manufacturers as it did in the KBL shareholding structure. Accordingly, AB InBev Botswana while not the majority shareholder will continue to exercise a majority of the votes at shareholder level and the directors appointed by the company are able to exercise a majority of the votes at board of directors’ level.

Furthermore, AB InBev Africa - through its whole owned subsidiary AB InBev Botswana – will indirectly hold 40 percent of shares in each of KBL and Beverage Manufacturers. Since those shares carry double voting rights and entitle AB InBev Botswana to appoint directors who are able to exercise a majority of the votes at board meetings, AB InBev will control KBL and Beverage Manufacturers.

KBL is expected to lose about 35 percent of its income and assets due to the transfer on the non-alcoholic beverages operations to Beverage Manufacturers. As AB InBev Africa seeks to formalise its voting control of KBL and Beverage Manufacturers, it will trade its entire shareholding in Sechaba in return for part of Sechaba’s holdings in KBL and Beverage Manufacturers. The proposed transfer will see repurchase by Sechaba of AB InBev’s entire 16.839 percent in Sechaba, which represents the 10.1 percent interest in each of KBL and Beverage Manufacturers.

As a result of the share repurchase, Sechaba’s financial results in KBL and Beverage Manufacturers will reduce from 60 percent to 49.9 percent while AB InBev Africa will hold 10.1 percent of each of KBL and Beverage Manufacturers, and AB InBev Botswana will continue holding 40 percent of each KBL and Beverage Manufacturers. Under the proposed structure, AB InBev Africa will no longer hold shares in Sechaba.

Still, AB InBev Botswana will then sell its 40 percent stake in Beverage Manufacturers to TCCC and AB InBev Africa will sell its 10.1 percent in Beverage manufacturers to TCCC. In addition, AB InBev Botswana will sell its 40 percent shareholding in KBL to AB InBev Africa. When the maze of transactions is complete, AB InBev Africa will hold 50.1 percent of the issued shares in KBL and Sechaba will hold the remainder of shares in KBL, while TCCC will hold 50.1 percent in Beverage manufactures and again Sechaba will be left with 49.9 percent shares in Beverage Manufacturers.

The share repurchase is subject to the approval of a simple majority of votes by Sechaba’s shareholders present at the Extraordinary General Meeting slated for 14th September.