Monday, September 21, 2020

Sechaba shareholders settle for a raw deal

Sechaba Brewery Holdings Limited shareholders at their extraordinary general meeting unanimously voted to reduce the holding company’s stake in its cash cow Kgalagadi Breweries Limited (KBL) and Beverage Manufacturers Botswana.

The shareholders approval puts to rest a chapter that played itself through intense negotiations over the three years since the global brewing giant Anheuser-Busch InBev acquired SABMiller Plc (now AB InBev Africa). Prior to acquisition, SABMiller Plc through SABMiller Botswana B.V (now AB InBev Botswana) held 16.839 percent shareholding in Sechaba. In addition, Sechaba until recently held a 60 percent interest in KBL while AB InBev held the remaining 40 percent.

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 over 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. After the negotiations concluded, AB InBev proposed another deal in which they the company exchanges its 16 percent shareholding in Sechaba in exchange for increased stakes in KBL and Beverage Manufacturers.

The deal which has now been approved by Sechaba shareholders involved complex transactions. Sechaba together with AB InBev Africa as shareholders of KBL had 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.

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 approval by Sechaba shareholders to the deal proposed by AB InBev Africa has been criticised from some quarters, noting that it benefits AB InBev at the expense of the local company. Their main concerns is that with Sechaba’s reduced stake in KBL and Beverage Manufacturers, the company is going to get less share of profits made by its associates. While Sechaba used to rake in 60 percent of profits made by KBL, it will now only get 49.9 percent of that.

This reduction in profit share comes at a time when KBL is expected to bounce to high profits after the government reduced the alcohol levy from 55 percent to 35 percent. Ever since its introduction in 2009, the levy has been saddling KBL, resulting in falling profits. With Sechaba missing out on future improved profits, it means the country misses out on increased tax revenue.

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