Zambrew Loses Taste for Coca Cola
Beverage, Zambian Breweries

It started in October 2016 when the first cautionary announcement (published through SENS Announcement from LuSE) was made by Zambrew on its proposed disposal of the non-alcoholic ready-to-drink business segment of the company. In that announcement (and 8 others that followed), shareholders were advised that on 11 October 2016, Anheuser-Busch Inbev (ABInBev the parent of Budweiser beer) had confirmed receipt of notification from The Coca-Cola Company regarding its intention to acquire the stake of AbInBev in Coca-Cola Beverages Africa Propriety Limited.

Now, we all remember that this was around the same time ABInBev decided to buy the castle lager company SABMiller. This move by the Coca-Cola Company would come as no surprise as ownership was being realigned in the beverage business.

Zambrew was able to sell Coca-cola (among other soft drinks) through a Bottler’s Agreement that it had with The Coca-Cola Company (TCCC). Following ABInBev’s intent, TCCC notified Zambrew of its desire to terminate the bottler’s agreement. Shareholders were subsequently advised that ABInBev and TCCC had reached an agreement in principle for the latter to acquire the non-alcoholic ready-to-drink business segment of the company subject to meeting all regulatory requirements and material consents to the deal.

Fast forward to present day, Zambrew announced that it had entered into a Master Purchase Agreement (MPA) on 2 May 2018 with Coca-Cola Holdings Africa limited who are an indirect subsidiary of TCCC. Details of the deal are that Zambrew had agreed to dispose of its business of manufacturing, distribution, marketing and selling of all soft drinks (with the exception of Maheu) to TCCC.

It is clear that the new owners of Zambrew have a clear focus on propping up the plethora of drinks they come with (Budweiser et al.). It is ubiquitously known that they carry very strong brands and coca-cola would be an unnecessary distraction. Hence it was imperative that TCCC moves quickly to secure their brand. This is part of their strategy of ensuring that Coca-cola remains a global brand.

Due to the complexity of how Coca-cola is woven into the Zambrew business model, there will be a number of steps that will be taken to conclude the separation. According to SENS Announcement of 3rd May 2018, in order to facilitate the transaction, Zambrew will have to implement an internal restructuring process that will see the separation of the “soft” business from Zambrew’s business of brewing, manufacturing, distribution, marketing and selling of alcoholic beverages in Zambia. This “hard” divorce will see the incorporation of a new company aptly known as “SoftCo” and Zambrew will hold all the issued shares (save for a single share that will be held by a representative of ABInBev). Zambrew will then sell and transfer all its interests to SoftCo. These interests include Zambrew’s right, title and interest in and to all of its assets, properties and rights held and used in the business. This will also include tangible personal property, records, intellectual property and any other artefacts that are identified in the Master Purchase Agreement (MPA).

In short, SoftCo is the special purpose vehicle that will be used to facilitate the transaction for the sale. The shares are worth an aggregate purchase price of USD 142, 272,000. In addition, the estimated inventory value (coca-cola in ex stock) will be valued and padded onto the purchase price. Other amounts to be padded or subtracted to the valuation include the estimated business portion of seller transaction expenses and tangible asset valuation adjustments following an asset audit.

A key takeaway from this transaction is that the new owners of Zambrew have been very clear from the beginning that they will focus on their core products. This is typical of an extant player in the beverage industry that understands its markets and the game it chooses to play. However, looking at the plethora of drinks at stake, Maheu looks the most vulnerable of the lot. It will come as no surprise should the fate of opaque drink be analogous to that on its cousin chibuku which has new parents.

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