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SAB, AB InBev deal ‘brewing a political headache’ – economist

14th October 2015

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

  

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The proposed R1-trillion takeover of SABMiller by Anheuser-Busch (AB) InBev will not be an easy feat, owing to scrutiny by South Africa’s Competition Commission and attempts by government to secure local ownership, jobs, tax and investment, Nomura International executive director, senior emerging markets economist and strategist Peter Attard Montalto warns, noting that the market should prepare itself for a “political headache”.

“The market appears to be assuming that AB InBev can simply come along and pay cash for the shares of SABMiller that are listed on the JSE and then have a small portion of nonliquid notionally listed shares on the JSE that don’t trade for five years.

“However, at an economically disadvantageous rate, it could mean that local investors, including the Public Investment Corporation (PIC), would decide to go for the cash,” he said in a statement.

The two companies earlier this week reached an in-principle agreement that would see AB InBev acquiring SABMiller's shares for £44 apiece in cash, with a partial share alternative available for around 41% of the British–South African multinational’s shares.

Montalto highlighted that government, acting through the Competition Commission would be challenging a number of possible conditions, including the removal of a ‘real’ listing.

“The main route for fiddling in this regard is the Competition Commission, which falls under the Department of Economic Development and Minister Ebrahim Patel. Anything with the remotest whiff of a ‘real’ competition issue will have to go through the commission, including likely associate company changes of ownership under SABMiller. This despite InBev’s small footprint locally.

“The commission and JSE will try and ensure there is some real dual listing of liquid traded stock onshore. The exchange control rules and JSE listing rules can be brought to bear here as well,” he said.

The PIC, meanwhile, noted in a statement that it remained resolute that it was critical for the new entity to be listed on the JSE and fulfil criteria for inclusion in the FTSE JSE Shareholder Weighted Index to ensure that all SABMiller shareholders benefitted from the future growth of the company.

“It is also our preference that the receipt of cash and swapping for shares of the new entity on the JSE is synchronised,” it said.

The PIC would be engaging with both AB InBev and SABMiller regarding the finer details of the listing, as well as ensuring that the rights of minority shareholders are taken into consideration during and post the transaction.

Montalto stated that the PIC’s power to sway government policy and government intervention, as well as the power it held through its equity ownership and relations and “guidance” given to local funds, was key.

“It is also important to remember that, in South Africa, any corporate entity that is changing, most especially when it involves and offshore player and ownership is in the equation, it will sound alarms in government and the tripartite alliance.

Further, Montalto pointed out that, with the current economic challenges facing the country, job preservation would be a top priority, particularly at a manufacturing level.

“The Competition commission has, in the past, sought detailed assurances on levels of investment and local content inclusion in concert with jobs. Wider empowerment, the black economic-empowerment issues and union involvement can become apparent here,” he noted.

He added that tax structures would also be closely monitored by the National Treasury, the South African Reserve Bank and the commission, using the exchange control framework and commission process to ensure tax efficiency from an InBev perspective was reduced.

Montalto said he expected government to use its competition, exchange control and dual listing regulations, which could possibly slow the progress of the takeover.

UNION RESPONSE
The Food and Allied Workers Union (Fawu) has said it would oppose the deal.

“We believe this ‘giant’ called SABMiller has its roots in South Africa and its success is based on sacrifices made by thousands of workers who built this company over decades and throughout the last century and it must retain some listing on the JSE,” the union commented.

It added that claims that the deal would not lead to job losses in South Africa, were “dishonest” as there would be rationalisation of the brewer’s operations. 

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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