Drinks giant Diageo has pulled off a deal with rival Heineken to expand its footprint in Africa.
On Wednesday, the company announced that it’s carrying out a huge asset swap with Dutch brewing giant Heineken that will see it expanding its African operation by taking a 20% stake in Guinness Ghana Breweries.
Diageo owns huge drinks brands like Smirnoff, Captain Morgan rum, and Guinness, but the production of the later is licensed in some markets.
Diageo is now trying to take back more ownership of its operations in Africa, a huge growth market for beer.
Data produced earlier this year by research firm Canadean estimated that Africa’s beer market will expand more than any other over the next two years, averaging 5% growth or more each year. Meanwhile growth in beer sales of beer in the West is pretty much flat.
Africa now represents 10% of Diageo’s global market and Diageo’s Kenyan operation recently reported a 39% growth in profits. Two months ago Diageo severed ties with Heineken on joint venture in Namibia and South Africa as it looked to gain more independence in the region, and ensure it increases its market share.
Rival beermaker SABMiller, which has just rebuffed a fresh takeover bid from ABInBev, is also showing that Africa is the future when it comes to beer. It reported an 11% growth in revenue from the quarter last quarter.
In a statement released earlier, Ivan Menezes said: “The transaction we have announced today continues our proactive approach to our portfolio, enhancing our focus on the core to achieve Diageo’s performance ambition.”
Heineken will receive big stakes in brewing companies in both Jamaica and South-East Asia for its part in the deal.
It will take on Diageo’s 58.7% stake in Desnoes & Geddes, the maker of Red Stripe Beer, as well as 49.99% of GAPL, a Malaysian drinks manufacturer. The size of the stakes being sold means that Diageo is set to make a £440 million profit.
It’s a welcome boost — less than two weeks ago Diageo CEO Ivan Menezes warned that profits will fall by at least £150 million in the next year thanks to weak currencies in emerging markets.
So far today, investors are clearly not as excited about this deal as the company, and shares in Diageo, which is listed on the FTSE 100, are down around 0.5%.