The High Court has removed a key legal hurdle standing in the way of one of East Africa’s largest corporate transactions, dismissing an application that sought to block Diageo’s planned exit from East African Breweries Limited.
In its ruling, the court rejected a bid by Bia Tosha Distributors Limited to halt the sale of Diageo’s 65 percent stake in EABL and its holding in spirits maker UDV Kenya to Japan’s Asahi Group Holdings.
The court also lifted interim orders that had frozen completion of the transaction, effectively allowing the deal to proceed despite a long running dispute over beer distribution rights.
“The application is dismissed, and any interim orders issued earlier are hereby discharged,” the court said.
The matter will be mentioned on April 15 for directions on the hearing of the main case.
The decision paves the way for Asahi Group to become the largest shareholder in EABL upon completion of the transaction.
In the Sh300 billion deal, Asahi will take full control of Diageo Kenya Limited, the investment vehicle through which the British firm holds its stake in EABL.
It will also acquire Diageo’s 53.68 percent shareholding in UDV Kenya, where EABL holds the remaining stake and management control.
Bia Tosha Distributors Limited had sought to block the transaction, arguing that Diageo’s exit from Kenya would weaken its ability to enforce any future court ruling.
The distributor said it would be forced to pursue litigation in the United Kingdom if it succeeds in its claim for damages, which it estimates at Sh25 billion following the termination of its distribution contract.
It argued that transferring the shares would place Diageo beyond the jurisdiction of Kenyan courts, effectively frustrating enforcement of any decree issued in its favour.
The firm further told the court that the transaction would render its case nugatory by splitting shareholding and allowing Diageo to exit the local market before the dispute is determined.
Bia Tosha had asked the court to preserve the substratum of the case by blocking the transaction pending determination of the dispute.
EABL and Diageo opposed the application, warning that halting the transaction would destabilise an established supply chain that supports thousands of direct and indirect jobs across Kenya and the wider East African region.
Unresolved Bank-Client Disputes Climb to UGX 3.5 Tn as Chief Justice Zeija and BoU Governor Atingi-Ego Push for ADRThey argued that disruption would affect distributors, retailers, hospitality partners, farmers and other suppliers who rely on predictable production, logistics and working capital cycles.
EABL and its subsidiary Kenya Breweries Limited said they are major contributors to the Kenyan and regional economies, both directly and indirectly.
“Kenya’s attractiveness as an investment destination depends in part on the security and predictability of property rights and the ability of companies to engage in legitimate commercial transactions without unwarranted judicial interference,” KBL submitted.
The brewer warned that granting orders to restrain a multinational from restructuring its shareholding based on unproven allegations would have a chilling effect on both foreign and domestic investment.
Diageo described the application as an attempt to hoodwink the court into interfering with a nationally significant transaction in order to advance private commercial interests.
The dispute stems from a 2000 agreement under which Kenya Breweries Limited granted Bia Tosha distribution rights across multiple locations in Nairobi and Kajiado, including Industrial Area, South B, Langata, Rongai and Ngong Road.
The distributor paid goodwill of Sh27.3 million for the territories and was granted rights to distribute Kenya Breweries Limited products, excluding keg beer.
Kenya Breweries Limited later repossessed some areas, including Baba Dogo, Dandora I and II, and Kariobangi North, reallocating them to other distributors.
Bia Tosha sought a refund of goodwill for the repossessed territories, but Kenya Breweries Limited declined, maintaining that the payments were non refundable and that the agreement was non exclusive.
The dispute has been in court since 2016, with multiple procedural turns, including a High Court order to maintain the status quo, a Court of Appeal decision referring the matter to arbitration, and a subsequent Supreme Court ruling reinstating High Court proceedings.
The main case remains pending before the High Court.
This news report was adapted from the Business Daily.
