14 Sep 2022 Competition Commission okays Heineken’s acquisition of Distell with strings attached
SA’s Competition Commission has conditionally recommended the Competition Tribunal to approve Heineken’s proposed takeover of parts of Distell, the country’s largest alcohol producer.
Heineken, the world’s second-largest brewer, announced in late 2021 it was looking to buy Distell’s flavoured alcoholic beverages (FABs), wine, and spirits operations and acquire a controlling interest in Namibian Breweries (NIH) through its special purpose vehicle Newco.
These portfolios will be combined with the Dutch brewer’s 75% shareholding in Heineken SA and certain other fully owned export operations in Africa.
The Heineken Group operates the Sedibeng brewery, producing a range of beers including, amongst others, Heineken, Amstel and Windhoek.
Prior to the merger, Heineken entered into various agreements with Namibian Breweries Limited (NBL) to manufacture, market, and distribute NBL’s products, such as Windhoek, in SA.
Heineken also owns and operates a network of 13 distribution depots and undertakes its own primary and secondary distribution to supply its products across SA.
The brewing giant launched Strongbow, a cider brand in SA in 2016, and manufactures and supplies several local craft beer brands including Jack Black and Stellenbrau. Further, Heineken also owns Fox, a cider brand introduced in 2020.
Aside from Distell maker of Hunter’s and Savanna branda, Heineken is the only significant manufacturer of ciders in SA.
Citing a raft of conditions to be met prior to finalisation of the deal, the commission highlighted that the merger results in a horizontal overlap in the broad market for FABs and in the narrow market for ciders.
This distinction is material because, although Distell owns several FABs, it also owns the two largest cider brands in the country while Heineken owns the Strongbow and Fox brands in SA.
There are other manufacturers within the FABs market, but the merging parties are the largest manufacturers of cider in SA.
Taken as a whole, the Commission found that the proposed transaction is likely to substantially prevent or lessen competition in the relevant markets as the merged entity will be a dominant supplier of FABs with a market share above 65% and would be the largest supplier of cider in SA.
To address the competition concerns arising from the transaction, Heineken has committed to divest its Strongbow business in SA and other SACU countries.
Public interest commitment
The Commission and the merging parties also agreed to a number of public interest commitments, including R10-billion over five years to maintain and grow the productive operations in SA, as well as an employee share ownership scheme that would transfer more than R3-billion equity to its local workers.
Other investments include establishing a R400-million supplier development fund to invest in small businesses, a R200-million contribution to promote localisation and growth initiatives within the country and invest R175 million in a tavern transformation programme to create safe, responsible and sustainable businesses with a positive impact for consumers and society.
Further to that, there will be establishment of an Innovation, Research and Development Hub for the Africa region based in SA within five years.
To address employment concerns, the merging parties agreed to maintain aggregate employee headcount for a period of five years following the merger and not to retrench any employees below specified managerial grades which includes the bargaining units.
The merged entity also committed, in the event of any retrenchments, to considering retrenched employees for suitable vacancies in Newco for a period of three years following the merger
The offer is set to split Distell into two businesses, with the brands excluded from the transaction include Black Bottle, Bunnahabhain, Burn McKenzie, Deanston, Gordons Gin, Scottish Leader, and Tobermory Gin.
The Out Of-Scope Assets business involves the distillation, maturation, blending, bottling, distribution, and marketing operations of the above brands.
Post-merger, the Out-Of-Scope Assets will be owned by Capevin Holdings Proprietary Limited, currently a wholly owned subsidiary of Distell but which will, after the transaction, be held by Distell’s current shareholders and Heineken in respect of those Distell shareholders that elect to sell their Capevin shares to Heineken.