Diageo, Heineken, Namibia Breweries in Africa Venture

07 Mar 2008 • by Natalie Aster

Diageo Plc, Heineken NV and Namibia Breweries Ltd. signed a joint venture to boost sales of their cider, beer and ready-to-drink brands in South Africa and challenge market leader SABMiller Plc, reported The Bloomberg.

Diageo, the world's biggest liquor maker, and Heineken, the biggest Dutch brewer, will each own 42.25 percent of the new company, DHN Drinks Ltd., and Namibia Breweries will own 15.5 percent, London-based Diageo said in a statement today. The parties will share profit in proportion to their holdings.

The agreement extends the companies' current joint venture, Brandhouse Beverages, which will keep distributing the brewers' products in South Africa. Heineken and Diageo own a combined 29 percent stake in Namibia Breweries, which makes Heineken beer under license and whose Windhoek Lager competes with SABMiller's premium brands in neighboring South Africa. SABMiller has more than 90 percent of the South African beer market.

``The new structure will enable us to realize further growth opportunities as a result of the strong platform we will create,'' Diageo's African head Nick Blazquez said in the statement.

Diageo and Heineken also signed a separate brewing and bottling venture in South Africa, and will build a plant that will produce brands including Amstel. Diageo will invest 100 million pounds ($201.4 million) in DHN Drinks and the Heineken venture.

Heineken last year ended a 40 year-old contract under which SABMiller brewed Amstel in South Africa. SABMiller, founded as South African Breweries in 1895, forecast an impact of $40 million to $50 million on this year's earnings before interest, taxes and amortization from the loss of the contract. The company is also buying Royal Grolsch NV, to have a Dutch beer brand to sell in Latin America and South Africa.

Sales of Diageo's biggest beer brand, Guinness, started growing again in fiscal 2007 because of demand for the black-and- white stout in Nigeria. The African country overtook Guinness's native Ireland as the second-biggest market for the beer.

Diageo fell 13 pence, or 1.3 percent, to 1,003 pence at 8:52 a.m. in London trading, and Heineken fell 74 cents, or 2 percent, to 36.38 euros in Amsterdam as stocks slid across Europe. SABMiller shares were down 1.9 percent in the U.K. capital.