The Competition Commission has recommended that the Competition Tribunal approve, with conditions, the proposed transaction whereby the Heineken Group through Sunside Acquisitions (Newco) intends to acquire a controlling interest in Namibian Breweries Investment Holdings (NIH) and the flavoured alcoholic beverages (FABs), wine and spirits operations of Distell Group Holdings (in-scope assets).

The acquiring firm is Newco, a special purpose vehicle controlled by Heineken Group.

In South Africa, the Heineken Group operates the Sedibeng brewery, producing a range of beers including, among 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 South Africa.

Heineken also owns and operates a network of 13 distribution depots and undertakes its own primary and secondary distribution to supply its products across South Africa.

Heineken launched Strongbow (a cider brand) in South Africa in 2016 and manufactures and supplies several South African craft beer brands including Jack Black and Stellenbrau. Further, it also owns Fox, a cider brand introduced in 2020. Aside from Distell, Heineken is noted as the only significant manufacturer of ciders in South Africa.

The primary target firms are NIH, and the in-scope assets of Distell. NIH is con­trolled by Ohlthaver & List Beverage Company (O&L) and Heineken.

The target businesses or in-scope assets comprise of the FABs, and wine and spirits business of Distell. In the FABs segment, the transaction includes the two largest cider brands in South Africa - Hunter’s and Savanna.

The Distell brands that will be excluded from the transaction include Black Bottle, Bunnahabhain, Burn McKenzie, Deanston, Gordons Gin, Scottish Leader and Tobermory Gin (out-of-scope assets).

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, currently a wholly owned subsidiary of Distell but which will, after the transaction, be held by Distell’s current shareholders and Heineken.

The commission found that the merger results in a horizontal overlap in the broad market for FABs and in the narrow market for ciders.

The evidence collected by the commission shows that there is stronger competition between cider brands than between ciders and other FABs. This distinction is material because, although Distell owns several FABs, it also owns the two largest cider brands in the country (Savanna and Hunter’s) while Heineken owns the Strongbow and Fox brands in South Africa. There are other manufacturers within the FABs market, but the merging parties are the largest manufacturers of cider in South Africa, the commission outlines.

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 South Africa.

To address the competition concerns arising from the transaction, Heineken has committed to divest its Strongbow business in South Africa and other South African Customs Union countries.

The Strongbow divestiture will be implemented in a manner that promotes transformation in the industry.

The Commission and the merging parties have also agreed to a number of public interest commitments in South Africa.

To address employment concerns in South Africa, the merging parties have 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 has 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.