SABMiller agrees to SA funds for Coke bottle merger

Bottles of beer and cider produced by Belgian-Brazilian group Anheuser-Busch InBev, and British-South African brewer SABMiller. (AFP)
Bottles of beer and cider produced by Belgian-Brazilian group Anheuser-Busch InBev, and British-South African brewer SABMiller. (AFP)

Johannesburg - SABMiller and Coca-Cola have agreed to concessions with the South African government to win approval for a deal to combine their soft-drink operations, the companies said on Wednesday.

The concessions, agreed with the South African Ministry of Economic Development, include a three-year freeze on layoffs and the companies investing R800m to support small South African businesses.

SABMiller [JSE:SAB], which is in the process of being taken over by larger rival Anheuser-Busch InBev [JSE:ANB], agreed in November to team up with Coke to create Africa's largest soft drinks bottler, Coca Cola Beverages Africa.

The business will have annual sales of R42.72bn and ambitions to corner the fast-growing market on the continent.

The all-equity deal was given a preliminary approval in December by South Africa's Competition Commission, which said it could go ahead on several conditions, including Coca-Cola Beverages Africa limiting jobs cuts to 250 and making sure it buys cans, glass, sugar and crates from local suppliers.

The Commission investigates deals for any antitrust issues and recommends remedies to the Competition Tribunal, which makes a final ruling. A Tribunal hearing on the proposed deal is due to start next Monday.

South Africa has a history of taking its time over approving deals, partly because regulators have a public interest mandate to safeguard jobs in addition to an antitrust mandate to protect competition.

The deal echoes an agreement struck between Anheuser-Busch InBev to create a R1bn fund that will support the South African beer industry and protect jobs in the country to help seal approval for its proposed takeover of SABMiller. Wal-Mart, the world’s biggest retailer, agreed to set up a R200m development fund when it acquired a controlling stake in Massmart in 2011.

"I am very happy that we have reached this agreement and hope we now have a clear path to the conclusion of this transaction," said SABMiller Chief Executive Officer Alan Clark.

Coca-Cola Beverages Africa will account for 40% of all Coke volumes sold in Africa, serving 12 southern and eastern African countries. It will be headquartered in South Africa, its largest market.

The deal would also hand Coke an extra 20 brands, including sparkling soft drink Appletiser, whose fruit juice concentrate is sourced from South African producers.

Coca-Cola and SABMiller agreed to maintain and grow Appletiser production operations to serve the domestic market and use as a base from which to export elsewhere in the world.

The Gutsche family, Coke's South African bottling partner, will also be a shareholder in the Coca-Cola Beverages Africa.

One of the funds will be invested in agriculture development and the second to develop retailers owned by people discriminated against during apartheid, the company said. “The agreement between the merger parties and the South African government is expected to expedite the approval process,” SABMiller said.

Focus on localisation

SABMiller said it agreed to invest R800m to support enterprise development for two groups of entrepreneurs.

- The creation of a R400m fund for enterprise development in the agriculture value chain, particularly to support and train historically disadvantaged developing farmers and small suppliers of inputs to Appletiser and CCBSA products on a competitive and sustainable basis

- R400m incremental investment to develop downstream distribution and retail capabilities with associated skills development and training. This is expected to create an additional 20 000 black-owned retailers.

Detailed commitments to localisation of CCBSA's supply-chains have been accompanied with an agreement that the merger parties will convene an annual local Supplier Development Conference, produce an annual report on localisation and train managers on the advantages of localisation, SABMiller said.

The company will provide for small retail outlets to be free to provide 10% of visible space in the Coca-Cola coolers to smaller competitor products where there are no other coolers available in the retail outlets.

It will increase the broad-based empowerment ownership of CCBSA to 20% and selling a 20% shareholding in Appletiser South Africa to appropriate black shareholders, who will be expected to participate actively in the business.

It will also maintain and grow the Appletiser South African production operations to serve the domestic market and as a base from which to export Appletiser to the rest of the continent and elsewhere in the world.

- Additional reporting by Fin24 and Bloomberg.

Brent Crude
All Share
Top 40
Financial 15
Industrial 25
Resource 10
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
I'm not really directly affected
18% - 1786 votes
I am taking a hit, but should be able to recover in the next year
23% - 2342 votes
My finances have been devastated
34% - 3499 votes
It's still too early to know what the full effect will be
25% - 2520 votes