Changing hands
Diageo, the foreign majority shareholder in Guinness Nigeria Plc, agreed on 11 June 2024 to sell its 58.02 percent controlling stake to…
Diageo, the foreign majority shareholder in Guinness Nigeria Plc, agreed on 11 June 2024 to sell its 58.02 percent controlling stake to Tolaram, a multinational company based in Singapore. Under the terms of the deal, Tolaram will enter into long-term licence and royalty agreements to continue producing the Guinness brand and other Diageo beverages locally. Tolaram will also make a mandatory tender offer to minority shareholders, potentially increasing its controlling stake in Guinness Nigeria. In a regulatory filing with the Nigerian Exchange, the board of Guinness Nigeria stated that it expects the transaction to be completed in 2025, pending necessary regulatory approvals in Nigeria.
At first glance, the sale appears to be at a premium — Guinness shares traded at ₦50 on the Nigerian Stock Exchange, while the deal paid nearly ₦81 per share. It is crucial to understand the context of this momentous decision. One of the oldest companies is shifting from its traditional manufacturing focus to concentrate solely on its import and trading operations. Macro-level factors such as a shrinking middle class, foreign exchange challenges, and rising production costs form one side of the equation. On the other side, changing consumer preferences, particularly among the younger demographic favouring spirits over beer, are driving this strategic pivot. Diageo’s exit from the beer business underscores this shift towards spirits. The divestment of its controlling stake in Guinness Nigeria is part of a broader trend among Western conglomerates reevaluating their business models in Nigeria. Manufacturing in Nigeria presents numerous obstacles, including FX access, power supply, evolving consumer preferences, and decreasing disposable incomes. These challenges continue to drive up costs, making it difficult to maintain profit margins. Many Western investors are opting to shift towards trading by importing finished products or licensing local production (contract manufacturing). Moreover, companies have various strategies for marketing their products, either by themselves or through local partners and distributors. Several Asian conglomerates with extensive experience and success in Nigeria have emerged as key local partners for these foreign firms, facilitating their adaptation to the Nigerian market and business environment. Tolaram, renowned for its efficient distribution network and manufacturing prowess, has taken on the significant challenge of revitalising an industry facing declining trends amidst challenging macroeconomic conditions. Time will tell if they can successfully navigate these headwinds and revive growth.