Diageo has entered into a three-part asset swap with Heineken that will give the Dutch brewer global distribution rights to Red Stripe beer, but boost the London-listed drinks group’s presence in Africa.
Heineken is paying $780.5m (£515m) to Diageo as part of the deal, which comes as Ivan Menezes, chief executive of the UK company, continues to clean up its sprawling global operations and sell off assets that are considered peripheral.
Diageo is selling its 57.87 per cent shareholding in Desnoes & Geddes (D & G), a company listed on the Jamaican Stock Exchange and which owns the Red Strip brand, to Heineken. Heineken already had a 15.5 per cent stake in D & G.
Following the deal with Diageo, the Dutch brewer will launch a mandatory offer for the remaining shares in the Jamaican group — representing 26.7 per cent of D & G’s total issued share capital — raising the possibility that it could be taken private.
In addition, Diageo will swallow Heineken’s 20 per cent stake in Guinness Ghana Breweries, and Heineken will buy Diageo’s 49.99 per cent holding in GAPL, the owner of a drinks company listed in Malaysia.
Heineken and Diageo’s chief executives both emphasised the benefits of bringing more focus to their respective businesses. Jean-François van Boxmeer, chief executive at Heineken, said: “Having greater commercial control in the important regions of southeast Asia and the Caribbean will allow us to maximise the strong potential of our brands in these growth markets.”
As a result of the deal, Diageo’s shareholding in Guinness Ghana Breweries will rise to 72.42 per cent, while Heineken will have full ownership of GAPL and 73.32 per cent of D & G. Jamaican regulations mean Heineken will be required to make a further offer for all remaining shares in D & G.
Diageo forecast the deal will make it a profit of approximately £440m after tax, and said it will use the money to reduce its debts. Paolo Leschiutta, vice-president at Moody’s, said the debt reduction and greater control of its Ghanaian business will make the move advantageous for Diageo.
For Heineken, meanwhile, Mr Leschiutta said: “The benefits from greater control on its Jamaican, Malaysian and Singapore businesses will be offset by a minor negative impact on its credit metrics as the transaction is likely to be largely funded with debt.” He added, however, that Heineken’s Baa1 credit rating is not under threat.
Diageo has been trimming its assets to focus on core brands in an attempt to reverse three years of falling sales. In July, the group sold the Gleneagles hotel and golf resort in Scotland to hotel developer Ennismore, and cancelled a joint venture with Heineken in South Africa three years ahead of schedule.
The two companies will continue to have long-term distribution agreements in Malaysia, Singapore, Jamaica and Ghana, and another joint venture in Sierra Leone. A spokesman for Diageo said the company still has “a very good working relationship with Heineken”.
Centerview Partners advised Diageo on the asset-swap. Heineken was advised by Nomura.