By Jason Chau and Fabiana Negrin Ochoa
Asahi Group's stock fell Thursday after the brewer said it will buy Guinness maker Diageo's East Africa businesses in a $3 billion deal.
Shares of the maker of Asahi Dry, Japan's most popular beer, dropped as much as 7.5% in early trade before paring losses. The benchmark Nikkei Stock Average was last down 1.3%.
The initial decline--the stock's steepest in over a year--came after Asahi said that it will acquire a 65% stake in East African Breweries, which markets beer, spirits and pre-mixed alcoholic beverages in Kenya, Uganda and Tanzania, from Diageo for $2.35 billion. It will also take up a majority stake in UDVK, a Kenyan spirits producer and importer, for $646 million.
With the acquisition, Asahi aims to establish a foothold in Kenya and the East African market, which it expects to deliver long-term growth given the region's rapidly expanding population and economies.
Analysts say the move holds promise but have some reservations. Some noted the risk that Asahi will postpone its share buybacks if it focuses on paying down debt at the expense of capital returns.
"The acquisition strikes us as overpriced," said Citi Research analyst Hiroki Watanabe in a note.
Citi noted that East African Breweries is valued at 17 times its annual operating earnings, much higher than the industry's average.
The Diageo deal will likely increase Asahi's net gearing to 3.8 times net debt-to-Ebitda, Bernstein analysts said in a note, but it will be immediately earnings accretive and boosts the Japanese company's earnings growth outlook.
"The asset is highly cash-generative, and we expect gearing to be reduced swiftly," the brokerage wrote in a report.
Another positive is that the news will ease investors' concerns that the Tokyo-listed company was going to buy a North America asset instead, said Bernstein's Euan McLeish.
Since Asahi's about $11 billion acquisition of Anheuser-Busch InBev's Australia business in 2020, markets worried that it would go snap up another asset that would pump up its debt.
"Asahi is essentially buying earnings growth," McLeish said. "If you think about their footprint, which is around 40% Australia, around 30% Europe and the remainder Japan--there's not a lot of population or beer consumption growth in those markets."
North America would also be a tougher business environment, without the potential of emerging markets, where the Japanese company doesn't have much of a presence.
"It's the classic emerging-markets beer demand growth story. It's really about acquiring a sustainable, long-term engine for the business," McLeish said.
Write to Jason Chau at jason.chau@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com
(END) Dow Jones Newswires
December 18, 2025 00:17 ET (05:17 GMT)
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