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Strategic alliance with Castel Group in Africa

22 February 2001

Overview

  • South African Breweries plc ("SAB") and the Castel Group, Africa's two largest beverage companies, to consolidate their positions in Africa through a pan-African beverage alliance.
  • SAB to acquire a 20% stake in the Beer Division of the Castel Group ("CBB") and the Castel Group to acquire a 38% stake in SABI Africa, a subsidiary of SAB, by way of a nil premium share exchange.
  • Agreement to invest in promising new African markets, by way of 50:50 joint ventures.
  • Initially the alliance is broadly earnings neutral, and benefits will accrue from:
    • More efficient use of resources;
    • Medium-term strategic development and
    • Procurement, technical and training co-operation
  • Spreads investment portfolio in Africa.

Comment

SAB's Chief Executive, Graham Mackay: "Both SAB and the Castel Group have proved to be successful operators in diverse and challenging African beverage markets and this strategic alliance will allow both groups to benefit from each other's expertise, and the combination of their resources.

It strengthens an already existing relationship, whilst providing an excellent opportunity for us to enter previously unexplored markets within the African continent, which offer exciting growth potential.

We are looking forward to working closely with the Castel Group and co-operating in the development of the African beverage market."

Pierre Castel, Executive Chairman of the Castel Group: "The strategic alliance, which has been entered into by the Castel Group and SAB, emphasises the commitment of both groups to the African continent. Our respective operations are geographically complementary, and our alliance will provide scope for further development across the continent.

The ties between our two groups will enable the pooling of our resources, which will present new opportunities for investment and enhance our prospects for growth. We are confident that our close relationship with SAB will result in faster growth for both groups in Africa in their chosen beverage markets."

Strategic Alliance with Castel Group in Africa

SAB, through its subsidiary, SABI Africa, and the Castel Group, through its Beer Division ("CBB"), have entered into a strategic alliance, with respect to their operations in Africa (excluding South Africa and Namibia).

SABI Africa and CBB are two of the leading brewers in Africa with strong and mostly complementary market positions across Africa.

SABI Africa's operations are mainly in southern and east Africa, where it is the market leader in the majority of countries in which it operates. CBB's operations are mainly in countries in west and central Africa, where it is also the market leader in the majority of those countries. SABI Africa and CBB see the strategic alliance as a long-term relationship, which will enhance the development of both groups' beer and beverage businesses in Africa, and will give rise to financial benefits in a number of areas. The managements of both groups will provide support to each others' operations where required, and it is envisaged that benefits will accrue through:

  1. spreading investment risk over a broader portfolio of markets in which the parties have strong positions;
  2. more efficient use of resources, both in management as well as plant and equipment;
  3. co-operation in technical and training issues; and
  4. co-operation in the area of procurement.

In order to cement the relationship, SAB will acquire a 20% stake in CBB, whilst the Castel Group will acquire a 38% stake in SABI Africa, effectively by way of share exchange. A shareholders' agreement will govern the arrangements between the parties. The initial impact of the share swap in terms of earnings, cashflows and net assets is broadly neutral, and both groups have similar earnings prospects and equivalent, conservative, gearing profiles. The investment by SAB in a 20% shareholding in CBB is in line with its strategy of investing in a spread of businesses in Africa, which provide cash generation and growth opportunities across a wide spectrum of developing markets. The value of SABI Africa's net assets transferred to the Castel Group in this transaction is approximately US$73 million, and the value of CBB's net assets transferred to SAB is approximately US$64 million.

The strategic alliance also provides for the parties to establish 50:50 joint venture companies to set up and/or acquire beer, carbonated soft drink and mineral water businesses in those African countries where opportunities may arise and in which they currently do not have a presence. These joint ventures will combine the resources, production, marketing and distribution skills, of both SABI Africa and CBB, leaving the joint ventures well placed to enter those African territories that offer the greatest potential.

The transaction will become effective on 1 April 2001, subject to the satisfactory completion of an operational due diligence by both parties.

Notes to Editors

Information on SAB/SABI Africa (www.sabplc.com) SAB is one of the leading international brewers with operations in Africa, Europe and Asia. It ranks as one of the major brewers in the world, measured by volume, and is the leading brewer in emerging markets. In the year ended 31 March 2000, SAB produced 53 million hectolitres of beer.

SABI Africa is the holding company for SAB's African beer, sorghum and carbonated soft drink interests outside South Africa and has brewing and ancillary operations in 12 countries, namely Angola, Botswana, Ghana, Kenya, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. In the year ended 31 March 2000, SABI Africa had total beer production of 13.9 million hectolitres, comprising 6.7 million of clear beer, and 7.2 million hectolitres of sorghum beer. SABI Africa's carbonated soft drink production for the period amounted to 2.7 million hectolitres.

Information on the Castel Group

The Castel Group has beer, carbonated soft drink and mineral water interests, primarily in the francophone countries of west and central Africa. Its operations cover Angola, Benin, Burkino Faso, Cameroon, Central African Republic, Chad, Côte d'Ivoire, Democratic Republic of Congo, Ethiopia, Gabon, Mali, Tunisia, Morocco, Mozambique, Niger, Senegal and Togo. In the year ended 31 December 2000, the Castel Group had total beer production of 9.1 million hectolitres, its entire beer production comprising clear beer. It had total carbonated soft drink and mineral water production of 7.3 million hectolitres.

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