Cross-shareholding Probe Could Delay Diageo’s $2 Billion EABL Sale
The Comesa Competition Commission's ongoing investigation poses a serious challenge for Diageo, which is still recovering from a $750,000 settlement imposed in September for anti-competitive behavior. Diageo owns a 65 percent stake in East African Breweries Limited (EABL), which includes Uganda Breweries in Uganda.
The Commission is examining cross-shareholding practices among major brewers, a move that could delay Diageo’s planned divestment from EABL amid fears of potential anti-competitive conduct.
Details of the Investigation
The regional competition authority’s CEO, Willard Mwemba, addressed the issue in a recent press briefing, explaining that cross-shareholding itself is not illegal but could lead to harmful anti-competitive outcomes depending on how it is used.
“There is an ongoing investigation, generally for several beer companies that have cross-shareholding in each other as minority or majority shareholders, which is not a wrong thing. What becomes wrong is what you do with cross-shareholding,” said Mwemba.
The watchdog is withholding further comment on the specifics of the transaction or investigation until the inquiry is concluded.
Implications for Diageo’s Sale
- The sale of Diageo’s 65% stake in EABL, valued at approximately $2.2 billion, is on hold.
- Investigation centers on whether cross-shareholdings among dominant breweries could restrict fair competition in the East African market.
- Concerns arise from the potential misuse of such holdings rather than the mere existence of cross-shareholding.
About EABL and Diageo
East African Breweries Limited is a leading brewer in East Africa, with subsidiaries including Uganda Breweries. Diageo, a British multinational, holds a majority stake in EABL, making this investigation and sale significant for the regional beer market landscape.
“While there is nothing inherently wrong with cross-shareholding, it may have potentially harmful patterns,” Mwemba added.
Diageo’s strategic decisions are now subject to scrutiny amid regulatory efforts to ensure competitive market dynamics in the East African Community.
Author’s summary: The Comesa Competition Commission’s probe into cross-shareholding may delay Diageo’s $2.2 billion divestment from EABL, highlighting regulatory concerns over anti-competitive risks in the regional beer market.