On 09 March, 2023, the South African Competition Tribunal (“Tribunal”) announced the decision to conditionally approve Heineken’s acquisition of Distell (the “Proposed Transaction”).
Broadly, the Proposed Transaction would see the Heineken Group, through Sunside Acquisitions (Pty) Ltd (“Newco”), acquire a controlling interest of Distell Group Holdings Limited in South Africa and other select markets across sub-Saharan Africa. The NewCo would comprise of Heineken and the majority of Distell’s assets.
In assessing the merger, it was identified that Heineken’s Strongbow brand competes with the Savanna and Hunters brands of Distell. As a result, it was ordered that Heineken divest its Strongbow brand in South Africa and an independent licensee that is also majority owned by historically disadvantaged persons (“HDPs”). Ancillary to the divestiture order, it was also ordered that Heineken would provide support services to the licensee that acquires the Strongbow brand of which include, inter alia: cider production and packaging services; warehousing and logistics services; sales and marketing support services.
Irrespective of the fact that any competition concerns had been placated by the Heineken’s divestiture of its Strongbow brand, a wide array of public interest remedies were also imposed on the Proposed Transaction. In this regard, the following public interest conditions were also imposed:
- that NewCo spend a a cumulative capital expenditure of R10 billion over a period of 5 (five) years;
- that Newco shall invest an amount of R3.8 billion to plan, develop, construct and commission a new greenfield brewery in South Africa within five years of the closing date of the transaction;
- that Newco shall also procure that it or suitably qualified and experienced third parties shall invest an amount of R1.7 billion in South Africa to develop,construct and commission a greenfield maltery in South Africa within five years of the closing date.
In addition to the above remedies, it was also ordered that the merging parties must, inter alia: increase procurement of services and supplies from small, medium and micro-enterprises (“SMMEs”) and firms owned by HDPs; invest in localization initiatives and transformation programmes; create an employee share ownership scheme in the South African entity and NewCo with a minimum shareholding of 6%; and a moratorium on merger-related retrenchments.
Evidently, the price of international firms conducting mergers in South Africa is becoming increasingly onerous. In this regard, merging parties should always pre-emptively consider which public interest initiatives it may proffer to the South African Competition Commission (“SACC”) to facilitate timeous merger approval. The counterfactual, however, risks prolonged negotiations with competition authorities, which will result in frictional costs as a result of delayed transaction approval.