Beer Mega-Merger Could Boost Expansion for Diageo in Africa

  • Guinness maker seeks to get 20 percent of sales from continent
  • AB InBev-SABMiller deal may also spur acquisitions for others

Diageo Plc, the maker of Guinness beer, said it may consider buying brands that could be shed during Anheuser-Busch InBev NV’s $107 billion acquisition of SABMiller Plc, with a particular focus on Africa.

“If assets become available in Africa, we would be interested,” Diageo Chief Executive Officer Ivan Menezes said Wednesday at a media event in New York. If not, the mega-merger will have little impact on the company, he said.

Diageo, which also produces Smirnoff vodka and Johnnie Walker scotch, wants to get 20 percent of its sales from Africa, up from 13 percent this year, after investing more than $1 billion in the continent over the past five years. Mass-market brewers and distillers want to harness the spending power of Africa’s emerging middle class as they cede market share to smaller independent brands in developed countries.

The London-based company says that its beer business in Africa will help stoke demand for its spirits. Some analysts question that strategy because Diageo uses separate sales teams and distribution channels for the two categories in Nigeria, one of its biggest markets in the region. Last month, the companybought a 20 percent stake in Guinness Ghana Breweries from Dutch brewer Heineken NV, and is weighing increasing its stake in Guinness Nigeria to 70 percent.

Diageo’s shares fell 0.9 percent to 1,883 pence at the close of trading Thursday in London. The company has gained 1.9 percent so far this year.

Less Competition

Beer makes up 20 percent of Diageo’s business, Menezes said. The company sold some of its brewing assets to Heineken, including its stake in the Jamaican brewer of Red Stripe, in October.

The merger of AB InBev, the maker of Budweiser, and SABMiller could lead to deals for other companies as well, Bloomberg Intelligence analyst Duncan Fox wrote in a note Wednesday. The combination of the two brewing giants means less competition for others seeking to make an acquisition, he said.

Guinness has been sold in Africa since 1964, when the Dublin-based brewer introduced the stout to Nigeria. Diageo competes “fiercely” on the continent with SABMiller brands, Menezes said.

“Beer is a very local business, and so the scale of SAB-ABI doesn’t change really in Africa substantially,” he said. “Having said that, there’s no doubt they will be a formidable competitor, and we absolutely intend to hold our own. We’ve got very big growth ambitions in Africa, both beer and spirits.”

(A previous version of this story was corrected to change “divisions” to “ambitions” in the final paragraph.)

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