AB InBev has intervened in the Competition Tribunal’s regulatory scrutiny of the R40bn Distell-Heineken tie-up, calling for SA’s largest alcohol producer to sell its Hunters cider brand if it wants the deal to get the go-ahead.
The deal will combine the world’s largest cider manufacturer, Heineken, which makes Strongbow, with SA’s largest alcohol producer and the maker of Savanna and Hunters.
The tribunal, which acts like a court on competition matters and must approve large mergers in SA, began hearing from parties interested and affected by the merger on Wednesday in Pretoria.
The deal comes as SA struggles to attract investment and as beer is becoming less popular in places such as the US. It will give European brewer Heineken access to very popular box wines and more ciders.
To get the deal over the line, Heineken has proposed selling the Strongbow cider brand in SA and Namibia to a historically disadvantaged joint venture.
The Competition Commission found that the merger would diminish competition in the flavoured alcohol beverages market. It did, however, recommend to the tribunal that the deal go ahead because it is satisfied the sale of Strongbow to a credible majority black-owned buyer would deal with its competition concerns. According to the commission, the Hunters and Strongbow brands compete with each other.
Strongbow was loss-making in SA in 2020, according to the Heineken deal prospectus. However, according to evidence at the hearings, it has since clawed back profitability.
AB InBev, which owns SAB, has asked to be allowed to intervene in the hearings, calling on the tribunal to force Distell to sell Hunters, one of its strongest brands.
SAB said in a statement that the Competition Commission had found the merger will bring about a substantial prevention and lessening of competition in the cider and flavoured beverage markets. “We support this view.”
There is no guarantee the tribunal will accept SAB’s argument. It is also unclear if such a recommendation, if accepted, would scupper the deal or change the price, as Hunters far outsells Strongbow in SA.
Advocate for the merging parties Jerome Wilson questioned SAB’s request to intervene at the tribunal: “It is entirely unclear what interest SAB has apart from the obvious interest in seeking to delay or frustrate the approval of a transaction that has a pro-competitive effect.”
He said one of the primary intentions of the deal is to create [a] business able to effectively compete with AB InBev, which he called a “leviathan in alcoholic beverages”.
But the SAB owner is objecting to the divestiture and proposed BEE buyer of Strongbow and suggesting the preferred buyer does not have the expertise required to compete with it. In a statement, SAB said “the merger will result in the removal of an effective competitor” to it.
“SAB has always been pro-transformation and we fully support and strongly believe that the purchaser should be a BEE partner. Our core argument is on whether Strongbow is the right brand to divest,” it said.
The new company consisting of Heineken and most of Distell’s assets has agreed with the department of trade, industry & competition to invest approximately R16bn over five years.
The new firm has made undertakings about retrenchments. In addition to existing BEE ownership schemes, the new company will establish an employee share ownership plan that will hold about 6% of the SA business for the benefit of local, historically disadvantaged employees.
The hearings are set down until Monday, with labour concerns also set to be addressed.
The Heineken R180-a-share offer is twofold: R165 a share for most of Distell’s businesses, including its cider brands and ready-to-drink spirits, wine and Amarula brands. That will be housed with Heineken’s SA business and Namibian breweries, which will form a business initially called Newco.
Distell shareholders were offered another R15 a share for the company’s international whisky brands, which will be housed in separate unlisted entity, CapeVin.
Existing majority Distell shareholder Remgro will have a majority stake in CapeVin.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.