International brewing giant Heineken has agreed to cough up roughly R10 billion investment among other public interest conditions to seal its €2.2 billion (R38.3bn) purchase of Distell.
Heineken announced its offer to buy the South African company in November.
The offer splits Distell into two businesses, with its wine and spirits brands to be combined into a new company (Newco), with Heineken Southern Africa’s business and the Dutch interest in Namibia Breweries.
In a statement of Friday the Competition Commission recommended the deal gets the green light from the Competition Tribunal, but imposed a number of tough public interest conditions.
On Twitter, The Passive Income Guy (@hazelwood_dave) said, “Tough conditions imposed on Distell/Heineken merger. You’d swear foreigners were falling over themselves to invest in our country...“.
Conditions included that the Dutch brewer invests more than R10 billion over five years to maintain and grow the aggregate productive capacity of its operations and related facilities in South Africa.
But the Commission raised certain concerns to the deal.
It found that the proposed transaction was likely to substantially prevent or lessen competition in the relevant markets as the merged entity would be a dominant supplier of flavoured alcoholic beverages, with a market share above 65 percent and would be the largest supplier of ciders in South Africa.
Distell is the second-largest cider producer in the world after Anheuser-Busch InBev, which owns the Strongbow brand.
To address these competition concerns, Heineken has committed to divest its Strongbow business in South Africa and other Southern African Customs Union countries.
The Commission and the merging parties had also agreed to a number of other commitments in South Africa.
This included implementing an Employee Share Ownership Scheme that will transfer more than R3bn of equity to workers of the merged entity’s South African operations.
It also has to establish a R400 million Supplier Development Fund to invest in small, medium enterprises and Historically Disadvantaged Persons-controlled suppliers as well as contribute R200m to promote localisation and growth initiatives within South Africa.
Furthermore, Heineken, which houses a worldwide portfolio of over 170 beer brands, must invest R175m in a tavern transformation programme to create safe, responsible and sustainable businesses with a positive impact for consumers and society.
The Commission also wants the Dutch brewer to establish an Innovation, Research and Development Hub for the Africa region based in South Africa within five years.
The merging parties had also agreed to maintain the employee headcount for a period of five years following the merger and not to retrench any employees below specified managerial grades, which included the bargaining units.
The merged entity had 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.
Distell has a market value of R39bn. Its shares rose 1.76 percent to R176.56 on Friday, having gained 34.27 percent in the past three years.
Distell last month released its results for the year to June 30, 2022, which saw its headline earnings and headline earnings per share increase by 36.8 percent to R2.3bn and by 36.7 percent to 1 051.8 cents, respectively.
Distell will delist from the JSE when the deal passes all competition hurdles.
BUSINESS REPORT