Regulatory authorities in Tanzania have put an indefinite hold on the merger between Tanzania Breweries Ltd (TBL) and its main rival, KIBO, agreed last week between the two companies' respective parent companies, South African Breweries International (SABI) and the Diageo-owned Kenya-based company, East African Breweries Ltd (EABL).

Under the deal, EABL immediately closed its KIBO brewery in Moshi, transferring production and distribution of its Tusker, Pilsner and Pilsner Ice, Guinness FES and Guinness Malta and KIBO Gold brands to TBL. Observers have estimated that the closure resulted in the loss of 1,000 jobs.

Reciprocally, SAB's Kenyan operation, Castle Brewing Kenya Ltd, closed its Thika brewery and transferrred its brands to EABL's Kenyan subsidiary, Kenya Breweries Ltd.

The Tanzanian government has questioned the credibility of the deal, alleging that it had been carried out illegally. The Ministry of Industries and Trade said the two companies had not made representations prior to agreeing the transaction to its Fair Competition Commission. "A merger or takeover cannot be regarded as having been consummated and would not be considered to have effect in law until such a time as the Minister for Industries and Trade issues an authorisation," Godfrey Mkocha, the Fair Competition Commissioner said.

"The Fair Competition Commission now wishes to clarify that an authorising order for a merger or takeover of KIBO Breweries by Tanzania Breweries Ltd has not been issued by the minister in accordance with the provisions of section 39 of the Fair Competition Act, 2002," Mkocha said. The ministry has now demanded a report detailing the market viability of the deal and the number of employees from the redundant brewery who will be re-employed.

However, TBL's planning and corporate affairs director, Phocas Lasway, said that the company had complied with all regulations. "We have already submitted the details of the transaction. We just hope that the approval will come through," Lasway said.

The deal would give TBL more than 90% of the beer market in Tanzania, sparking concern about price rises. It has also been alleged that the deal was carried out without the prior consultation of TBL shareholders. Lasway dismissed suggestions that the deal would result in price rises and said shareholder approval would be sought at an extraordinary general meeting. TBL has also said it will look to fill any existing vacancies with suitable ex-KIBO employees.

TBL parent company, London-based South African Breweries, said the company would comply with all government requests for information and go through all the necessary procedures. SAB spokesman, Ciaran Baker, also confirmed that the company had been in contact with the relevant authorities prior to the announcement. "We did speak to the appropriate government departments beforehand knowing that we would need regulatory approval," Baker told Just-drinks.

"The agreements are all subject to regulatory approval and shareholder approval. Necessary applications have been filed to the Tanzanian government, according to government procedures, and we are attending to any further government requests for information."

At this stage, it is not clear if the imposition of a regulatory block in one country would also jeopardise the transaction in the other. Baker said SAB was not considering that contingency at present because it expected regulatory approval would be granted in both markets. "At the moment, the expectations are that we will get regulatory approval in Tanzania and Kenya."