Heineken, which is buying SA’s largest alcohol producer Distell, is considering disposing of its Strongbow cider brand in SA in order to be proactive about possible competition commission concerns.
The European brewer made a R40.1bn offer for Distell, which still requires competition authorities’ approval and a majority shareholder vote.
The deal will merge Strongbow, the world’s largest cider brand, with Savanna, the world’s fastest-growing cider brand, but will also give Heineken access to Distell’s East African markets, where it has had great success in Kenya and Mozambique.
SA competition authorities have at times imposed strict conditions before approving the sale of local assets to foreign firms. Last year, the authorities caused an outcry when they initially refused the sale of Burger King by BEE investment holding company Grand Parade to American equity fund ECP Capital Partners on BEE grounds.
Competition authorities are legally mandated in SA to weigh up both competition and public interest concerns, which include job creation, moratoriums on job cuts and empowerment, when deciding whether to allow mergers.
Heineken owns beer brands and Distell’s brands include Nederburg and 4th Street wines, as well as Amarula and a range of spirits and brandies such as Klipdrift, Bain’s and Three Ships.
The only overlap that may raise competition authorities’ eyebrows in SA is the cider brands.
Heineken told Business Day that “the proposed divestment of the Strongbow licence in SA and Namibia is something we wouldn’t enter into lightly, and is driven by a desire to be proactive as we work with the regulators during the approval process”.
They have not made a final decision on the disposal of the Strongbow brand.
Heineken said the proposal to sell the SA and Namibian businesses would have no impact on the ownership or strategic direction of the brand in international markets.
“Internationally, Strongbow remains an important brand for Heineken for the long term.”
On Monday, Distell and Heineken published a prospectus — a legally required document giving shareholders information to help them decide whether to sell shares or stay in the unlisted entity — in which it states that independent advisory firm BDO believes the financial offer is fair.
The prospectus envisages a speedy competition approval process — assuming it will be complete by the end of July with Distell delisted from the JSE on September 6.
If the deal goes ahead, it will split Distell into two parts.
The Heineken R180 a share offer is twofold: R165 a share for most of Distell’s businesses including their cider brands, ready-to-drink, spirit and wine and Amarula brands. This will be housed with Heineken’s SA business and Namibian breweries that will form a business called Newco.
Distell shareholders were offered another R15 a share for Distell’s international whisky brands such as Scottish Leader, which will be housed in a separate unlisted entity called CapeVin. Existing majority Distell shareholder Remgro will have a majority stake in CapeVin.
Heineken envisions it will own 65% of Newco with existing shareholders holding a 35% stake.
The prospectus shows the Strongbow brand brought in revenue of R1.1bn in SA in the latest financial year, even while being loss-making locally in a year that included lockdown bans.
The prospectus also states that BDO found the Heineken R180 per share offer for Distell fair and reasonable.
Some investors had expected more per share and were unhappy. HSBC investment bank estimated between R207 and R286 a share before the offer was made.
At the time Distell CEO Richard Rushton, widely regarded for improving the business and cutting employee numbers, said the price was fair as it was 53% higher than the average weighted share price in the 90 days leading up to May 17, when news of the deal was leaked.
The prospectus states shareholders will vote on the deal, with a 75% majority required to give the go-ahead. It already has support from Remgro, the majority shareholder that has 56% of the voting rights.
It is believed the Public Investment Corporation (PIC), which holds 20% of the voting rights, is also in support.
The prospectus shows that a B-BBEE company will own 9% of Distell assets under Newco and, along with an employee share ownership scheme, it will bring the BEE shareholding ownership to a total of 15% of the SA and Distell assets that form Newco.
It also shows how Heineken’s profits and revenue were knocked in SA during 2020 due to lockdown trading bans.
Update: January 17 2022
This story said earlier BEE shareholding will make up 15% of Distell assets that form Newco. BEE shareholding will equal 15% of all the SA assets that form Newco. This story has been updated throughout.
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