Heineken's interest in buying a majority stake in Distell could be a loss for the JSE if Distell delists, but for the company's shareholders it will likely mean a win.
There is scant information about the talks, announced this week, between the Dutch brewing giant, the world's biggest cider producer, and Distell, which is Africa's largest cider producer.
Distell owns about 25 key brands, including Nederburg wines, Klipdrift brandy and Amarula liqueur.
Recent takeovers of JSE-listed companies by multinationals have resulted in delistings, among them PepsiCo's acquisition of Pioneer Foods, and Associated British Foods' purchase of Illovo Sugar. An exception was the acquisition by AB InBev of SABMiller, after which the brewing giant took a secondary inward listing on the JSE.
Explaining the interest in SA's companies by multinationals, Sasfin Securities' chief global equity strategist David Shapiro said SA is viewed as a "springboard" into the rest of Africa, whose population of 1-billion is a potentially massive consumer base.
Shapiro said if Heineken succeeds in acquiring Distell it will probably mean the latter's delisting from the JSE, whose listings have been steadily shrinking in recent years. In May 1999, the exchange had 811 listings, today it is down to 329.
329
The number of listings on the JSE, down from 811 in May 1999
Adrian Saville, investment specialist at Genera Capital, said it is a "reasonable assumption" that Distell will be delisted if Heineken buys it.
He said Distell is "a great quality business". On the JSE "we are down to a few hundred that are of a particular size and stature and maybe 100 that are highly investible and tradeable, and Distell is one of those". A delisting "would be positive for shareholders, but negative for the market overall".
Small Talk Daily analyst Anthony Clark said: "I can't see Heineken, an international company in the Netherlands, wanting to list on a secondary exchange like the JSE, which quite frankly in the scale of global markets is a non-event. I think Heineken would want to come in and buy the entire business."
But the wording of the cautionary announcement by Distell had Makwe Masilela, who heads Makwe Fund Managers, wondering if the company may remain listed.
Masilela said he is "not too sure that if competition authorities approve" the transaction, they would allow Distell to delist from the JSE. "Remember, they [Heineken] are keen on buying a majority stake, not the whole of Distell," said Masilela.
He also pointed to AB InBev's secondary listing following its acquisition of SABMiller. "I think the same principle may be applied."
Distell said in its cautionary announcement this week that Heineken, which owns the Strongbow cider brand, had approached it "regarding the potential acquisition of the majority of Distell's business", but added "there can be no certainty that an agreement will be reached".
Heineken confirmed "that it is currently engaged with Distell regarding a potential transaction". Neither company would comment further.
Masilela said Distell's distribution channel, especially in Africa, will work for Heineken because it has been successful even in lockdowns. "As much as we had some lockdowns, they [Distell] managed to increase sales volumes over the period of nine months ended December 2020, and they've done better than other brewers because of their logistics and distribution efficiency in Africa."
— It’s a‘reasonableassumption’that Distellwould bedelisted
Clark said Heineken's overture was interesting because "about a year and a half ago they walked away from building a very large brewery in SA because they didn't believe the market was of sufficient capacity to actually take a material capital investment into this country. But here they are coming today with an audacious bid for Distell."
But Clark said a key question is whether Distell's major shareholders, Remgro and the Public Investment Corporation, which together control 75% of the shares, will want to sell. Clark said both Remgro and the PIC would want a premium, with the PIC also possibly wanting to include jobs safeguards and investment commitments in SA from Heineken.
Remgro may consider swapping its shares in Distell for shares in Heineken to "externalise a certain proportion of their money into an international rand hedge asset involved in the liquor industry".
Shapiro doesn't believe Heineken would have approached Distell without Remgro's approval, "so I think Remgro may want to take cash or Heineken shares".
Saville said if Heineken were to succeed in its bid for Distell, which was trading at R164.76 this week, it would have to pay a premium for it. The PIC, which bought its stake at R170 a share, and Remgro are "not going to let it go at some discount".
Remgro declined to comment and the PIC had not yet responded to requests for comment by the time of going to press. The department of trade, industry & competition did not respond to requests for comment.
This week investor Dave Hazelwood said on Twitter that on May 12 and 13 there was "massive volume buying in Distell", adding: "You're telling me people were not trading on insider information?"
Responding to Hazelwood on Twitter, Frank Ford, head of Distell's investor relations, said the group was being added to the South African small-cap MSCI index and this was "largely behind the volumes and price action". Asked whether it would look into the share trades, Shaun Davies, director of market regulation at the JSE, said the division will consider all factors influencing recent trading to decide whether a further probe should be conducted.
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