What happened?
Diageo announced today an agreement to sell its 65% shareholding of East African Breweries Limited (EABL) to Asahi, as well as Diageo''s shareholding in the Kenyan spirits business UDVK, for a total after-tax proceeds of USD2.3bn.
BNPP View:
We view the disposal announcement as a positive for Diageo. We highlighted in our recent report (see What will Sir Dave do?) that EABL was a likely disposal candidate for Diageo and the sale announcement this morning is not a big surprise. What is a surprise, however, is the much higher than expected valuation that Diageo has achieved for the asset which will mean the deal will reduce Diageo leverage (ND/EBITDA) by an est. c.0.25x (per the company). We think the c.+2% share price reaction this morning looks fair.
Assets in the sale: Diageo announced today an agreement to sell its 65.0% shareholding of East African Breweries Limited (EABL) to Asahi, as well as Diageo''s (53.7%) shareholding in the Kenyan spirits business UDVK.
Proceeds: Per Asahi''s release we note that Asahi will pay total consideration of USD3.0bn to Diageo and this is split USD2,354m for the 65% stake in EABL and USD646m for the 53.7% stake in UDVK. Diageo estimates it will receive total net proceeds after tax and transaction costs of USD2.3bn.
Valuation: The deal implies a valuation multiple of c.17x EV/EBITDA for the combined assets and a USD4.8bn EV (on a 100% basis). For context, EABL''s market cap. as of yesterday''s closing price was c.USD1.5bn, which implied a valuation for Diageo''s 65% stake of c.USD1bn (c.6.7x EV/EBITDA).
Leverage: Diageo expects the transaction will de-lever Diageo''s group Net Debt/EBITDA by c.0.25x.
Deal completion: Completion is expected in the second half of calendar 2026.
Licensing agreement: Diageo has committed to enter into long-term licensing agreements with EABL, securing the continued production and distribution of Guinness, local spirits and RTD brands, as well as distribution of Diageo''s...
