Is EABL Next on the Market as Diageo Steadily Exits Africa?

East African Breweries Limited (EABL), one of the crown jewels in Kenya’s corporate sector, is now at the centre of market speculation following a broader strategic pivot by its parent company, Diageo PLC, which has been steadily retreating from several African markets.

According to a report by Business Daily Africa, the British beverages giant on Tuesday unveiled a sweeping $500 million (KSh64.65 billion) cost-cutting and asset disposal programme as part of what it calls an “asset-light model,” a strategy designed to reduce exposure to volatility in emerging markets and boost returns.

The Nairobi Securities Exchange-listed EABL, in which Diageo holds a 65 percent stake valued at about KSh100 billion, is now under the spotlight as one of the last major African assets in the UK multinational’s portfolio.

“With Diageo plc leaning towards its rich spirit portfolio globally and its continued exit from beer in Africa, we begin to speculate on a likely strategic exit by the shareholder (similar to Nigeria and Ghana) in EABL in the medium term,” said Standard Investment Bank, as quoted by Business Daily.

A Steady Pullback from Africa
Diageo’s retreat has been systematic. In 2022, the company exited Ethiopia and Cameroon. This was followed by the sale of a 58.02 percent stake in Guinness Nigeria in 2023. In April 2024, it offloaded its entire holding in Seychelles Breweries Ltd and an 80.4 percent stake in Ghana Breweries.

The growing pattern has fueled questions over whether Diageo’s presence in Africa is nearing its end, with EABL being the next candidate on the chopping block.

“It’s going to be above and beyond the usual smaller brand disposals that you’ve seen over the last three years,” Diageo’s Chief Financial Officer, Nik Jhangiani, told the Financial Times—a statement Business Daily cited as further indication of a significant portfolio shake-up.

Globally, Africa now contributes just nine percent to Diageo’s net sales, with EABL responsible for nearly half that figure. In contrast, North America brings in 39 percent, Europe 24 percent, and Asia Pacific 19 percent.

Why EABL Still Matters
While Africa may be a minor contributor to Diageo’s global revenue, EABL remains a strategically important business within the continent, accounting for 46 percent of Diageo’s African revenue. The investment bank SIB noted that the market might be underestimating the value of EABL, whose estimated worth could be as high as $2.79 billion (KSh360.75 billion) based on revenue generation and current market dynamics.

EABL’s shares have risen 8.3 percent since the beginning of the year, reflecting investor optimism despite two successive years of declining annual profit. Its net income fell 11.79 percent to KSh10.87 billion in the year ended June 2024, after a 20.87 percent drop the previous year. However, there has been a notable recovery in the latest half-year, with profits jumping 19.6 percent to KSh8.1 billion, aided by strong sales and lower debt costs.

This rebound may provide Diageo with a stronger negotiating position should it consider a sale, although the company is currently staying mum on any such intentions.

“We do not comment on market speculation,” Diageo told Business Daily in response to questions about the future of its EABL stake.

A Recent Buy-In Now Under Scrutiny
What’s particularly striking is that Diageo increased its ownership of EABL just two years ago. In a KSh22.7 billion transaction, the multinational raised its stake from 50.03 percent to 65 percent, a move initially interpreted as a sign of long-term commitment to the East African market.

But recent developments suggest otherwise. Despite dismissing rumours about selling Tusker and other beer brands earlier this year as mere “market speculation,” EABL’s CEO Jane Karuku’s assurances have done little to quell the growing questions around Diageo’s intent.

Globally, Diageo has denied plans to sell Guinness, which has been experiencing strong growth, or to divest from Moët Hennessy, its joint venture with luxury giant LVMH. Nonetheless, the company’s strategic focus appears to be shifting toward premium spirits like Johnnie Walker, which EABL distributes across East Africa.

Mounting Pressure and Industry Headwinds
Beyond Africa, Diageo is grappling with deeper challenges. The company has come under pressure from investors to slash costs and deleverage its balance sheet, especially as consumer demand slows and industry watchers warn that the alcohol sector may be headed for a structural decline akin to what tobacco companies experienced.

The $500 million cost-cutting initiative aims to increase annual free cash flow to around $3 billion starting next year, up from $2.6 billion last year.

The Business Daily notes that:

“Wider concerns that the industry, which is battling a reduction in drinking, may fall into the structural decline that has afflicted tobacco companies have weighed on Diageo shares.”

In this context, shedding less profitable or more volatile assets such as beer-focused businesses in Africa could be a strategic play to preserve capital and protect shareholder value.

What Could a Sale Mean?
If Diageo does decide to exit EABL, it would mark the end of a nearly 25-year era. Diageo took majority control of EABL in 2000 following its formation through the merger of Guinness Plc and Grand Metropolitan in 1997. Guinness had previously held a minority stake in the East African firm.

Any potential sale would require “deep-pocketed investors,” as the current 65 percent stake is valued at close to KSh100 billion.

For now, Diageo is playing its cards close to the chest. But the signals—from past disposals, market analyst commentary, and global restructuring efforts—indicate that EABL may not remain in its portfolio for long.

As analysts and investors keep a close watch, one question looms large: Is East African Breweries Limited Diageo’s next big African exit? Only time—and perhaps the next earnings call—will tell.