Delta Corporation has moved to quash growing speculation that they are not in good books with their parent company Anheuser-Busch InBev (AB InBev). This view seems to be gaining credence due to recent production disruptions which have led to severe shortages of soft drinks and beer. Recent foreign acquisitions also seem to run contrary to what AB InBev appear to be doing on the ground. Ab InBev holds a 40% shareholding in Delta Corporation.

New acquisitions

It looks like the whole issue revolves around Delta Corporation’s new foreign acquisitions. In December 2017, Delta acquired a 70% stake in Zambian Natbrew Plc. The problem is that Natbrew Plc was a wholly owned subsidiary of AB InBev. Why are they selling their majority stake in it? More recently, Delta Corporation announced that they are also acquiring United National Breweries Pty Ltd (UNB) in South Africa. Questions arose as to why AB InBev itself did not bid to acquire the company despite being better placed than Delta to do so. They are bigger and already have a stronger market presence in South Africa. However, according to Delta Corporation, there is nothing wrong with this arrangement. In a Press Release on 10th January 2019, Delta says, “It is in the public domain that in certain African markets, AB InBev is divesting from the traditional beer sector, a market segment in which Delta has proven competencies. The Delta Board has resolved to bid for any such assets as they become available. To date, AB InBev has divested Zambia and Malawi traditional beer businesses. It therefore is consistent that AB InBev would not bid for UNB.”

Funding for the acquisitions

The question as to who is funding the acquisition immediately becomes pertinent given the above scenario and also because production at Delta Corporation is somewhat constrained. According to the Press Release, the acquisition of Natbrew Plc “was funded through use of treasury shares and a bank loan. The funding structure has in no way affected the Company’s ability to fund its operations as it has sufficient cash resources.” Whilst Delta says the funding for the acquisition of UNB has not been finalised, observers seem to question how such an acquisition can be funded if AB InBev are not interested in the tradition beer business. Is this not where the much-needed foreign currency is going? “These investment transactions to date have had no direct impact on the operating cash, particularly the foreign currency required for the Zimbabwe operations. The Company had net cash of $302 million as at 30 September 2018. The disruptions to operations arise from the limited access to foreign currency,” Delta says.

What about the money owed to AB InBev?

Again, there has been speculation that there is trouble in the boardroom pertaining to unpaid dividends and other debt due to the parent company AB InBev. In response to this, Delta Corporation says, “AB InBev remains a committed 40% shareholder in the Delta business. AB InBev has supported Delta through credit lines for the importation of raw materials since access to foreign currency became limited and continue to provide support. In addition, AB InBev has agreed to place over $120 million, due to them in relation to unpaid dividends and fees, into savings bonds in order to reduce the pressure on the demand of foreign currency. AB InBev remains the anchor shareholder in Delta.” Perhaps a statement from AB InBev would suffice to put this matter to rest. The fact is that many foreign shareholders are struggling to get their dividends out of Zimbabwe. This is another effect of government’s insistence that the local bond note is at par with the US dollar.

It remains to be seen if Delta will do as well in the regional traditional business as they are doing in Zimbabwe. For now, they have done well to respond to potentially damaging rumours which are doing the rounds.