Diageo Plc, the Parent company of Guinness Nigeria has informed investors that it is no longer interested in taking up a further 15.7% of Guinness Nigeria Plc. The company had last year, made an offer to take up 15.7% of its Nigerian subsidiary in a move seen by many as a show of confidence in the outlook of its beleaguered subsidiary. The offer would have taken the parent company’s equity holding to about 70%.
However, the continuous dip in Guinness revenues and the resultant loss (first in 32 years) may have caused a rethink.
According to a press release sent to Nairametrics and published in the website of the NSE, the company explained it had taken the decision to quit the offer “in the light of the challenging market conditions in Nigeria in the past 12 months” and will therefore “focus its resources on continuing to support Guinness Nigeria”.
Diageo had last year surprised the market by making an offer of N175 per share for Guinness, at a time when the stock was trading at about N125. See Nairametrics analysis of the offer last year. However, dwindling sales and a switch to a loss of about N2 billion has reduced its share price to about N97.9. The share price has dropped by as much as 33% in a year, lower than the N125 price at the time an offer of N175/ share was offered.
With this deal now off the table, analysts believe the impact on its share price could be dire. Guinness currently sits on a support level of about N90 held mostly by the offer hitherto on the table. With the offer now off the table, many believe the share price could slide further below its support levels.
Last year, Diageo and Guinness completed a deal that had the latter acquire the distribution rights of Diageo’s spirit business in Nigeria.