BGI Ethiopia acquired the brewery from Diageo last year
One of the country’s oldest and largest breweries was sold last year for the price of a bottle of beer at a bar in Addis Ababa.
Documents obtained by The Reporter reveal that multinational beverage firm Diageo sold its stake in Meta Abo Brewery S.C. to BGI Ethiopia for the paltry sum of 60 birr.
The details of the Meta Abo sale agreement have been confidential since BGI and Diageo agreed to a deal in early 2022. Documents cross-checked with data from the Ministry of Revenues and the Trade Ministry’s Consumer Protection Department show that Diageo held 11.5 million shares in Meta Abo, with a par value of 1,000 birr a share.
BGI Ethiopia bought out all of Diageo’s shares for a total selling value of 60 birr (one euro at the official exchange rate). BGI also bought four shares from four nominal shareholders for one birr apiece, acquiring the entire company for 64 birr, or 0.0000055 cents per share.
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It is a far cry from the USD 225 million price tag Diageo paid when it acquired Meta Abo from the Ethiopian government back in 2012.
Herve Milhade, CEO of BGI Ethiopia, did not deny Meta’s one-euro acquisition cost when approached by The Reporter. He did, however, provide justifications.
“We acquired this company (Meta) at a very small price. We bought Meta from Diageo but it was no longer a company when we bought it. It was fully abandoned. Sometimes you buy a company which is not working anymore, and if you want to make it work, you have to invest so much. Then the cost of the company is very low,” Milhade told The Reporter.
The CEO confirmed Meta was caught deep in debt and tax crises, which forced Diageo to sell it off at such a meager price.
“It’s like buying a car without tires, windows or its essential parts. But the owner tells you to take it, just to get rid of the car from his garden,” said Milhade. “When we acquired [Meta]we also acquired debt.”
He expects to see the Meta merger finalized before the end of the year.
“Meta won’t exist anymore; it will be part of Castel Group and BGI. Together, we will create one unified company, which will be under the BGI umbrella,” he told The Reporter.
Still, there are underlying questions about the transaction, such as how the evaluation of Meta’s assets was conducted, and whether the government has secured the taxes due from the sale
A tax computation balance sheet approved by Ilu Wakjira, a senior certfication expert at the Ministry of Revenues’ Large Taxpayers Branch Office, reveals no capital gains or income taxes, nor interest or penalties, have been paid on the Meta sale.
Officials at the Consumer Protection Department and the Federal Document Authentication and Registration Service have also approved the sale at the stated price.
Further inquiries forwarded to Diageo and BGI Ethiopia by The Reporter did not garner responses.
Officials at the Consumer Protection Department, formerly an independent Authority since assigned to operate under the Ministry of Trade and Regional Integration, confirmed to The Reporter that “senior government officials are aware of the sale, transaction cost, and ongoing merger of Meta with BGI.”
An anonymous Department official told The Reporter his office’s mandate is only to identify whether the acquisition of Meta Abo would constitute a monopoly on the part of BGI.
“If there are pending tax issues related to the Meta acquisition, the Ethiopian government would surely have taken the case to court,” said an anonymous Revenues official. “As far as I know, there is no court case with Meta’s acquisition.”
In September 2021, before BGI expressed interest in acquiring Meta, Prime Minister Abiy Ahmed (PhD) and his Council of Ministers were preoccupied with a proposal for a tax bailout for Meta Abo Brewery,
A document tabled to the Council at the time reveals that Meta was unable to pay 3.69 billion birr in taxes, including principal, interest and penalties. The arrears accumulated in the four years leading up to 2021, when Meta was unable to service its tax obligations.
The alarming arrears led the Large Taxpayers Branch Office to warn Meta executives it would foreclose on Meta’s properties and auction them off to recover the unpaid taxes.
After considering several alternatives, the Council of Ministers decided to relieve Meta of 860 million birr worth of taxes from the total. They also decided the brewery would be sold.
The Council did not scrap the VAT and excise taxes owed by Meta, citing the brewer had already collected the taxes from consumers and was legally obligated to pay them to the government.
Documents reveal Meta owed 942 million birr in VAT and excise taxes after all other deductions. The federal government hoped to recoup the outstanding balance from the sale of the brewery.
It was at this point that BGI executives began negotiating with their counterparts at Diageo behind closed doors.
Finally, on January 24, 2022, Diageo officially disclosed its consent to sell Meta to BGI.
“Diageo has entered into an agreement for the sale of Meta Abo Brewery, its brewery in Sebeta, Ethiopia, to BGI, part of Castel Group. The sale is subject to approval by the Ethiopian Competition Commission and certain conditions. It is expected that the deal will complete early in 2022. Sale proceeds have not been disclosed,” reads a statement from Diageo released the same day.
An investigation conducted by The Reporter reveals that the value of Meta Abo Brewery was much higher than the value of the sale transaction with BGI Ethiopia.
The book value of Meta’s total assets stood at 1.57 billion birr as of December 31, 2022, according to a Meta Abo Brewery S.C. financial statement. The assets grew from 1.3 billion birr the previous year.
Experts are also having a hard time reconciling the sale value with the brewer’s assets.
“The book value was probably calculated based on property values averaged over a decade. The market value of Meta when BGI bought it in 2022 could have been much higher,” said Abdulmenan Mohammed, a seasoned financial analyst based in London.
He argues that Diageo could have sold Meta at the real value, and used the proceeds to pay off its arrears to come out on the other side with more than 600 million birr.
“There is no justification for selling Meta for 64 birr while it held all those assets,” said Abdulmenan.
Meta’s annual report and financial statement released December 31, 2022, was approved by its Board of Directors six months later. A UK-based firm, A.A. Bromhead Certified Audit Firm, conducted the audit.
Meta’s retained earnings dropped from 11.14 billion birr in 2021, to 626.8 million birr at the end of 2022.
Despite earning a whopping 1.23 billion birr in revenues in 2022, gross profit was 286 million birr, according to the financial statement.
“Overall, the financial statement indicates Meta was in good condition in 2022. It is not clear what forced Diageo to sell Meta at such a very low price,” said Abdulmenan. “Sometimes, court claims, contingency liabilities or unaccounted liabilities like bank guarantees are not written on financial reports. Unless there is such a case, there can be no way Meta is worth 64 birr.”
The expert argues Meta’s assets should have been re-evaluated before the sale.
Nonetheless, a recent report from Diageo contradicts Meta’s financial statement.
“In the year ended 30 June 2022, a loss of £95 million was recognized as a non-operating item attributable to the sale of Meta Abo Brewery Share Company in Ethiopia,” reads the report.
The report also elaborates on the impact of COVID-19 on Meta’s business.
An inside source familiar with the case suggested to The Reporter the actual transaction for the sale Meta Abo was conducted overseas, and then a well-calculated transaction was conducted in Ethiopia for the sake of formality.
“Such practices are common in FDI. After all the investments Diageo made in Meta over the decade, there is no way Meta was worth less than USD 300 million in 2022,” said the source. “Such firms commonly prepare cooked reports, intentionally reducing assets and increasing liability in order to convince the government that the company in question cannot survive without a government bailout. They also lower the transaction value in a bid to avoid taxes.”
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