(Photo: Unsplash / Monika Grabkowska) The “transaction is consistent with Diageo’s flexible, asset-light beer operating model which allows it to select the most appropriate structure and route to market for Guinness based on local conditions while retaining ownership of the iconic Guinness brand,” Diageo said in response to emailed questions.
Unilever Plc, Procter & Gamble Co., GSK Plc and Sanofi in recent months have also announced they are either cutting back on their exposure or exiting Africa’s most populous nation.
Read More: Currency Crisis Triggers Exodus of Businesses Out of Nigeria
Operating in Africa’s fourth-biggest economy has become increasingly challenging because of a decline in disposable incomes due to an almost 70% depreciation in the naira since June and decades-high inflation. A near complete absence of a reliable electricity supply and congestion at Nigeria’s ports are compounding the malaise.
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“Things are tight for Diageo in the country,” Ayodeji Ajilore, an analyst at ARM Investment Managers, said by phone. “They will be looking at other places to reshuffle their portfolio and get better results from their asset.”
In the nine-months to March, Guinness Nigeria reported a loss after tax of 61.65 billion naira compared with a 5.87 billion naira profit a year earlier.
“The market needs the kind of input that the likes of Tolaram can bring and survive. They have a more local understanding of the market,” said Ajilore. “Despite the economic headwinds the products of Tolaram are doing relatively well. They have competence they can use to grow the asset further.”
Finer Details
Tolaram’s consumer business in Nigeria operates under joint ventures with companies such as Kellanova and Colgate-Palmolive Co. for which it manufactures and distributes products such as Kellogg’s and Colgate.
As part of the deal, Diageo will enter into long-term license and royalty agreements with Tolaram for the production of the Guinness brand and its locally manufactured ready-to-drink and mainstream spirits brands, according to a statement from Guinness Nigeria.
The transaction is expected to be completed in fiscal 2025, subject to regulatory approvals, according to the statement. Once complete, Guinness Nigeria will remain listed on the Nigerian Stock Exchange and Tolaram will launch a mandatory takeover offer in compliance with local law requirements, according to the statement.
Diageo will retain ownership of the Guinness brand, which will be licensed to Guinness Nigeria for the long term and remain in the country through its international premium spirits business, Diageo said in a statement.
The international premium spirits business, which makes up about 6% of Guinness Nigeria’s total revenues, is in the process of being separated and registered in Nigeria, Diageo said.