Advertise with fastmoving.co.za
 
 

Brewers’ merger sets Distell free to take them on in local market
Brewers’ merger sets Distell free to take them on in local market

Brewers’ merger sets Distell free to take them on in local market

LIQUOR NEWS

bdlive.co.za - Jul 1st 2016, 08:58

AS THE £74bn Anheuser-Busch InBev (AB InBev) merger with SABMiller moves closer to completion, analysts are looking to Distell — which will soon be free of SAB shareholding — to become a more aggressive player in the drinks industry. 

One of the conditions competition authorities attached to the approval of the merger was that SABMiller dispose of its 27% stake in Distell. Pre-emptive agreements with Remgro, which controls 54% of Distell, are expected to be exercised in whole or in part.

Distell, which has been hamstrung by a control structure for almost 40 years, is about to be set free and that could mean the first serious competitive challenge to SAB’s local dominance.

Analysts believe Distell might even look to challenge SAB in the premium segment of the beer market. However, with SAB’s cider offering boosted postmerger by Stella Artois’ Cidre, Distell may have to focus on protecting its own cider brand Savanna and grow its spirits and wine brands.

Anthony Clark of Vunani Securities says the disposal by SABMiller will remove a lot of uncertainty from the Distell control structure.

"From here on, control will be firmly with Remgro, which means Distell will be able to issue shares to fund a more aggressive growth strategy."

Distell was created as a compromise after Remgro abandoned an attempt to challenge SAB’s near-monopoly in the beer market.

Control of Distell, which produces and markets brandies, ciders and Amarula Cream, was split three ways between SAB, KWV and Remgro. Several years ago Remgro, through Capevin, picked up most of KWV’s stake.

Concerns about tipping the delicate control structure is thought to have discouraged any rights issues.

,"Now the pyramid control structure can be unwound, Capevin does not need to exist," said Clark.

One competition analyst said a local tie-up between Distell and Japan’s Asahi Group was also a possibility.

Asahi is set to buy two of SABMiller’s most valuable international brands, Peroni and Grolsch, as required by the EU competition authorities.

Speculation about a venture into the beer market has been fuelled by the appointment a few years ago of former SAB executives to senior positions at Distell. These include Distell CEO Richard Rushton and head of global marketing, Dave Carruthers.

Asked for comment on the Competition Tribunal ruling and any plans Distell might have for the beer market, spokesman Dennis Matsane said the ruling reaffirms fair competition in the market. "With regard to ciders especially, we certainly don’t underestimate the increased competition in the market but we believe in the strength and quality of our cider brands."

The tribunal ratified most of the conditions attached as recommended by the government and the Competition Commission when it signed off on the deal earlier in June. There were, however, a few tweaks.

Megabrew, as the merged entity is referred to, would have to maintain or improve SABMiller’s policy of maximising local production of beer and cider as well as the local sourcing of inputs. It would also have to retain existing agreements with SABMiller’s owner drivers and its regional head office in SA.

AB InBev agreed to a R1bn investment fund and an implementation board would have to be constituted within 60 days of the deal’s close.

The tribunal, however, deviated from the commission’s condition on retrenchments, overruling the perpetuity clause that was agreed to by the economic development minister and the merging parties.

It placed a five-year period on any merger-related restructuring, after which any job losses would not be presumed to be the result of the merger unless the employee concerned could demonstrate otherwise.

Local barley farmers also won protection from the tribunal. Grains SA CEO Jannie de Villiers welcomed the condition that megabrew buy local barley as there were fears it would use cheaper imports.

Megabrew is obliged to procure the highest amount of barley that was produced in SA over the last three years. Farmers harvested about 300,000 tonnes of barley in 2015.

Barley procurement was fiercely debated during the tribunal’s three-day hearing last week. At issue was the price SABMiller paid, which is closely linked to that of wheat.

Megabrew’s legal counsel argued that the surge in wheat prices due to the drought had pushed up production costs. They argued they could not commit to procuring the same barley volumes if grain prices continued rising as it would put it at a disadvantage to rivals such as Heineken. 

Read more about: liquor news | liquor | inbev | sabmiller | distell

Related News

Distell waits for tribunal ruling
16/09/2019 - 10:03
Local alcoholic beverages company, Distell Limited, will have to wait for the Competition Tribunal’s decision whether or not global beer brewer Anheuser-Busch (AB) InBev and SABMiller plc (SAB) have breached their merger conditions by striking exclusive deals with outlets.

Distell and AB Inbev square off in booze showdown
13/09/2019 - 10:28
Exclusive branding arrangements with liquor outlets and agreements with sports stadiums took centre stage at Competition Tribunal hearings on Thursday, into Distell's accusation that Anheuser-Busch InBev (AB InBev) is contravening the conditions of its 2016 merger with SABMiller.

Consumers drink while retailers keep the tills active and lights on
10/09/2019 - 11:19
One in five South Africans is unemployed and economic growth remains anaemic, but retailers manage to grow, demonstrating that they still have some defensive qualities.

Distell says rest of Africa offset lower volumes in SA
28/08/2019 - 09:23
Alcoholic drinks company Distell, whose brands include Nederburg wines and Klipdrift brandies, says its rest-of-Africa business made up for lower sales volumes in SA in the year to end-June.

The SA liquor market is changing - these are the new favourites, says expert
21/08/2019 - 09:05
The way South Africans are consuming liquor is changing from traditional, heritage brands to modern, urban, "idiosyncratic" brands, according to Rowan Leibbrandt, founder of fine liquor merchants Truman & Orange.