Diageo and Heineken part ways in South African, Namibian Joint Venture

Diageo and Heineken N.V have agreed to go their own separate ways in a joint venture they formed in 2004 in South Africa and Namibia three years earlier than planned. The joint venture was originally formed to counter the dominance of SABMiller Plc, which controls over 90 percent of the South African beer market.

Diageo said it would sell its 42.25 percent stake in DHN Drinks, the joint venture they created that owns the licenses for the combined beer, RTD and Cider portfolio to Heineken. In addition, it will sell its 15 percent stake in Namibia Breweries and 25 percent stake in Sedibeng Breweries in Johannesburg to Heineken and Namibia Breweries respectively.

At the end Heineken will hold a 75 percent stake in DHN drinks and a 75 percent stake in Sedibeng Breweries, while Namibia Breweries holds a 25 percent stake in DHN drinks and a 25 percent stake in Sedibeng Breweries respectively.

Diageo will receive net cash of 2.5 billion rand ($199 million) from the transaction, while Heineken said it will cost it 1.9 billion rand ($151.40 million) to dissolve the joint venture.

Diageo’s spirit business in South Africa has grown over the 11 years of the joint venture that it felt it had the necessary scale to go it alone.

“Diageo does not want to continue sharing profits with their joint venture partners as their spirits products are growing faster than beer,” De Wet Schutte, an analyst at Avior Capital Markets, said by phone. “The read through is that spirits in South Africa is growing well.”

South Africa is Diageo’s fifth-largest spirits market by units sold, and its share of the market has increased from 26 percent to 40 percent over the past nine years, the company said. The region is central to Chief Executive Officer Ivan Menezes’ goal to boost the company’s sales from the African continent to 20 percent of revenue, from about 13 percent now.

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