Diageo, EABL in Sh296.7bn legal battle over sale to Asahi

A section of the EABL headquarters in Nairobi. [Wilberforce Okwiri, Standard]

British multinational Diageo has urged the High Court to allow it to sell off its Sh296.7 billion stake in East Africa Breweries Limited (EABL).

In its response to the new application filed by Kenyan distributor Bia Tosha Limited, seeking to block the 65 per cent shares sale to Japanese company Asahi, Diageo said that it has nothing to do with the approvals and or control of EABL’s contracts with distributors.

The firm’s general counsel, Anthony David William Smith, said that there was also no further specific prayer by Bia Tosha against it.

“Diageo PLC is a non-operating ultimate parent and is not a party to any distribution agreements in issue. Further, no liquidated or other monetary claim is pleaded against Diageo PLC in these proceedings, nor is any substantive relief sought against it in respect of the distribution dispute,” said Smith.

At the same time, Smith said that Diageo would, if Bia Tosha wins, be able to compensate it, as it is worth more than Sh619 billion.

Diageo’s lawyer, Njoroge Regeru said that the deal between the two multinationals is the largest transaction in the country, which will translate into taxes.

According to him, halting the sale would in turn hinder them from completing the transaction.

The senior lawyer asserted that stopping the process would mean Diageo would incur a loss of more than $2.3 billion.

According to him, the deal does not involve selling Kenya Breweries Limited (KBL) assets in the country.

“Therefore, even a short-lived injunction over the Transaction will trigger immediate and potentially irreversible consequences that cannot be cured by damages. The transaction was secured through a complex, competitive process with a buyer of Asahi's scale and suitability, and a delay or open-ended restraint could foreseeably hinder the parties in completing the transaction,” said Regeru.

He asserted that the orders sought meant that the court would attach KBL’s assets even before the case is heard and determined. He argued that EABL, KBL and UDV (Kenya) Limited remain in the country even after the sale of the shares.

At the same time, Regeru argued, the sale is subject to approvals from the competition authorities in Kenya, Tanzania and Uganda.

“These approvals have yet to be obtained,” he said.

The battle between Bia Tosha and KBL stands as the oldest case before the Constitutional Court. The distributor sued the beer manufacturer in a row over Namanga, Kajiado, Kitengela, Industrial Area, Langata, Rongai, Upperhill, Ngong Road, Hurlingham, Kawangware, Dagoreti routes.

Bia Tosha’s lawyer Ken Kiplagat claimed that Diageo was selling its only asset in the country, allegedly leading to its exit.

“Diageo's intended invites irreversibility and risk of evasion given Diageo' foreign character which means the intended asset divestiture amounts to real risk of non-enforcement of the eventual decree of this Honourable Court,” claimed Kiplagat.

He also said that KBL, UDV, Diageo have no powers to address the court as they were allegedly in contempt of court orders issued in 2016.

On the other hand, senior lawyers Kiragu Kimani, Kamau Karori and George Oraro who were representing the three companies urged the court to expedite the hearing, saying that there was a separate application that sought to clarification of court orders.

Kamau said that the case was a hotly contested one as it had moved from the High Court to the Supreme Court, and back to the High Court. He said that his client was ready to defend its position.

Oraro on the other hand said he would be filing grounds to oppose the new application.

In the initial case, the distributor claimed that it has paid over Sh38 million in goodwill for the distribution routes and that EABL declared the routes as part of sections, which have been making profits over the years.

It claimed that Diageo, which is the majority shareholder of EABL, was arm-twisting suppliers in a bid to block them from dealing in rival beer manufacturers' products.

"In yet another telling sign that Diageo was intent on 'killing' the petitioner through intimidation, Diageo posted the following message (video link) to its employees in Kenya on how to deal with Bia Tosja, which is the 1980 Lee Kuan Yew famous 'Iron' speech. It is the same threat that Diageo continues to use to intimidate its distributors in Kenya," the firm claimed in its court papers.

But EABL in its reply said that the contracts it has with distributors are not restricted. It argued that the dispute should go through mediation and then arbitration, which was dictated in the contract between them

KBL managing director Jane Karuku denied the intimidation claims, saying the brewer only appointed other distributors to the 22 routes in dispute after assessment revealed that Bia Tososha is unable to sufficiently supply the areas.

She claimed that Bia Tisha boss Anne Burugu had tilted the message by Diageo to find a favourable verdict.

Justice Mwamuye ordered EABL and Diageo not to take any action that would defeat the case.

He directed the case to be heard on February 26.