By: Nghiinomenwa-vali Erastus

The acquisition of Namibia Brewery Limited and Distell can go ahead if the new merger agrees to fulfil seven strict conditions.

This is according to the Namibia Competition Commission, which gave the proposal the green light early this week.

Heineken is the second biggest beer producer in the world and is active in producing, marketing, and distributing beer and other beverages through the proposed acquisition. It will expand its global beer share.

The Commission has given the beer and distributing giant conditions for its planned local acquisitions.

The first condition ensures domestic production (import substitution) of flavoured alcoholic beverages (FAB).

According to the Commission, it has noted that all Distells’ products are manufactured in South Africa and imported into Namibia. 

“The Commission determined that products consumed in Namibia must be manufactured or bottled in Namibia and in so doing create additional employment and contribute to further industrialization and economic growth,” wrote the Commission.

The Commission stated that the merged entity, created after the acquisition, shall establish a significant proportion of Distell’s current production in South Africa for products supplied in Namibia, backed by significant investment in existing and new production capacity at NBL’s facilities.

The condition specifics are that 50 000 hectoliters (HL) of Distell’s production and packaging of Hunters and Savanna brands from South Africa be done in Namibia within approximately 2 (two) years. 

Furthermore, within approximately three years of the merged entity’s operation, 200 000 HL of Distell’s selected wine brand(s) packaging from South Africa must be done in Namibia.

The second condition is based on local sourcing inputs.

The Commission indicated that the merged entity procures certain products and services locally. 

Heineken and Distell being foreign-owned-controlled companies, the Commission is concerned that the proposed merged entity might source products or services abroad (i.e., import substitution). 

To ensure that local sourcing continues post-merger, the Commission imposed the local sourcing conditions.

The Merged Entity, regarding input products sourced locally before the merger and concerning existing agreements, shall continue sourcing the referenced input products locally- no changing to abroad supply.

Furthermore, if Heineken goes ahead with their proposal, the merged entity shall continue sourcing services procured from Namibian-owned undertakings.

In line with sections 47(2)(f) and (h) of the Competition Act, the Commission imposed a condition requiring the establishment of an MSME Development Fund. 

According to the Commission’s explanation, the Fund will be used to build the capacity of selected MSMEs and make them sustainable. 

The Fund is aimed at capacitating MSMEs and, by so doing, leads to growth and sustainability of the sector leading to further employment creation and economic development.

 Furthermore, MSME Development Fund will be used to develop technical trade and operational skills, end-to-end business management skills, and digital, technology or related skills.

To build capacity in areas of business directly or indirectly related to servicing the merged entity, including but not limited to the supply of technical services (e.g. stainless steel welding); the supply of secondary packaging (e.g. paper or plastic labels); the supply of advertising and promotion(al) services (e.g. manufacture of branded apparel or other branded items). 

The fourth condition that the giant beer brewer has to fulfil to get NBL and Distell is to allow for the divestiture of its brand, Strongbow cider.

The condition of the divestiture of Strongbow means that within one year, the merged entity should license the rights to produce, market, distribute and sell its Heineken subsidiary brand, which is the Strongbow brand, to a purchaser. 

This is because there is an overlap on FAB. Heineken owns Strongbow, distributed by NBL, while Distell sells Hunters and Savannah, all ciders. This will create a solid single-player in ciders.

As a result, the Commission stated that Strongbow should be separated or disengaged from the acquiring group or its subsidiaries to allow competition among the ciders.

If all ciders are produced, marketed, and distributed by one group, the Commission has indicated that it will lessen competition among flavoured alcoholic beverages in the country.

The divestiture of the Strongbow brand will take the form of a perpetual, royalty-free license for the use of the Strongbow brand.  

The Commission further directed the merged entity not to engage in any activity that could reduce the value of Strongbow, hinder its sales, or render it an ineffective competitive product after getting rid of it.

During its analysis, the Commission has also identified some market entry barriers.

The Commission further noted that due to the market share and market power that the merged entity will possess post-merger, a likelihood of this policy being enforced would likely deter or limit the entry of Namibian-owned and Namibian-controlled undertakings in the market. 

“As a result of these concerns, the Commission imposed a condition on access to chilled space/refrigerators,” the Commission conditioned. 

If Heineken goes ahead, the new entity shall ensure that retailers shall be free to allocate up to 10% of chilled space/refrigerators in each beverage cooler owned by NBL or Distell Namibia in any on and off-consumption outlet in Namibia. 

This allocation right shall apply only to products manufactured or packaged in Namibia by Namibian-owned and Namibian-controlled companies. 

The Commission has directed that the existing NBL Commercial Policy must be amended, and the merged entity shall educate its employees and inform the market of the new changes to its Commercial Policy. 

At the same time, a moratorium on retrenchments (employees below management level) by way of an employment condition has also been imposed for five years if the merger goes ahead. 

SOUTH AFRICA DEMANDS ON DISTELL ACQUISITION

On the other side of the Orange River, the South African Competition Commission gladly accepted the proposal of the purchase of wine and cider company Distell Group but with significant conditions to be complied with.

The SA Commission has recommended to the Competition Tribunal, which makes the final decision, to approve the merger subject to conditions.

This is because the proposed transaction will likely substantially prevent or lessen competition in the relevant markets.

They have found that the merged entity will be a dominant supplier of flavoured alcoholic beverages, with a market share above 65%. It would be the largest supplier of ciders in South Africa.

The Commission and the merging parties also need to agree to implement an Employee Share Ownership Scheme that will transfer more than R3 billion of equity to workers of the merged entity’s South African operations.

Other investments include establishing an R400 million supplier development fund to invest in small businesses.

An R200 million contribution to promote localization and growth initiatives within the country and innovation, research, and development hub for the Africa region based in South Africa

To address employment concerns in South Africa, it added that the merging parties have agreed to maintain employee headcount for five years following the merger and not to retrench any employees below specified managerial grades.

Email: erastus@thevillager.com.na