Diageo PLC has announced plans to terminate its current partnership with Heineken South Africa in order to facilitate continued growth for its spirits portfolio and benefit from a more simplified structure of management in the region.

The standing agreement, established as a three way cost sharing venture between Diageo-managed Brandhouse LTD, Heineken N.V. (Heineken) and Namibia Breweries Limited majority shareholder Ohlthaver & List (O&L). The termination of the partnership was originally intended for 2018, but has been brought forward in an attempt to compete more readily against other brewery giants in the area, including Anheuser-Busch InBev NV and SABMiller.

To implement the transaction, Diageo has agreed to sell its 42.25 per cent equity stake in DHN Drinks LTD and transfer the associated shareholder loan to Heineken, as well as let go of a 25 per cent equity stake in South Africa based Sedibeng brewery to Namibia Breweries Limited.

The company will also acquire the remaining shares (which it does not already own) in brandhouse LTD – the beer and spirits sales and marketing joint venture in South Africa – which will now become a wholly-owned subsidiary of Diageo.

On the transaction, Ivan Menezes, Chief Executive of Diageo commented:

“We have worked very successfully with Heineken and NBL throughout our partnership, growing the beer business and establishing market leadership in spirits. From this leadership position we now believe that Diageo has the necessary scale to move to the next stage of growth for spirits, RTDs and our beer and cider portfolio in a focused, simplified ownership structure.”

Jean-François van Boxmeer, Heineken CEO and Chairman of the Heineken Executive Board, continued: “For the past 11 years, we have benefitted enormously from our close collaboration with Diageo and I would like to thank them for their valued partnership and wish them well for their future in the region.

“Our new structure allows us to focus solely on the beer category and strengthens our platform for continued growth. We look forward to working with our longstanding partner Namibia Breweries and are excited about our future prospects in this important part of the global beer market.”

Diageo will receive cash consideration of 2.5 billion ZAR (an amount equivalent to approximately 272M Australian Dollars), subject to customary adjustments.

Completion of the transaction is expected before calendar end 2015, and is subject to regulatory approvals.

Once complete, Diageo will continue to operate in South Africa and Namibia through wholly-owned subsidiaries.