South Africa: SABMiller shares dropped 4.4 percent after Heineken had ended Amstel South Africa contract

Shares in brewer SABMiller PLC dropped more than 4 percent Tuesday after rival Heineken NV ended the company's contract to make Amstel lager in South Africa, Associated Press reported March 13.

Heineken said late Monday it had terminated the licensing agreement that allows SABMiller to brew, market and distribute Amstel lager in South Africa and that it plans to build its own brewery there – meaning that London-listed SABMiller is facing increased competition in a market it currently dominates.

SABMiller said it will lose $80 million (60 million euros) in earnings before interest, taxes and amortization in the next fiscal year because of the loss of sales of Amstel, which currently represent 9 percent of its beer volumes in South Africa.

The company, which has a 97.5 percent share of the South African market, said it is already pursuing a number of initiatives to mitigate the impact of the license termination, including broadening its premium offering.

Sanford C. Bernstein analyst Trevor Stirling said the loss of the deal, a bone of contention between the two companies for some time, was clearly a blow for SABMiller, but added that it “causes headaches for both of them.”

Stirling estimates that SABMiller's other brands will be able to pick up around half of the volumes lost from Amstel.

Amstel will in the future be marketed and sold in South Africa by Brandhouse Beverages Ltd., a Cape Town-headquartered joint venture between Heineken, Britain's Diageo PLC and Namibia Breweries. In the meantime it will be sourced from Amstel breweries in Europe.

“Regaining the Amstel brand is an important development for both the Heineken and Brandhouse businesses,” Tom de Man, Heineken's regional president for Africa and the Middle East, said in a statement.

SABMiller shares fell 4.4 percent to close at 1,085 pence ($20.98) on the London Stock Exchange.

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