On 30 June 2016, the Competition Tribunal approved Anheuser-Busch InBev’s acquisition of SABMiller with a some amendments to the conditions previously proposed by the Competition Commission.
What is interesting to note is how the InBev/SABMiller merger was approved relatively quickly when compared to the protracted and embattled merger proceedings in the Walmart/Massmart transaction of 2012.
InBev/SABMiller applied for merger approval on 14 December 2015. The deal was approved on 30 June 2016, just over 6 months later. By comparison, the Walmart/Massmart transaction was announced on 27 September 2010, reported on November 2010 and the final appeal and review of that transaction was eventually decided before the Competition Appeal Court on 9 March 2012, 14 months after the process started.
What made the difference. Anheuser CEO, Carlos Brito, travelled to South Africa early on in the process and met with both Government and the Food and Allied Workers Union (“FAWU”) to discuss the transaction. Both Government and the trade unions agreed to the SAB deal. By contrast, in the Walmart/Massmart transaction, Government applied to the Competition Appeal Court to review the Competition Tribunal’s approval of merger and the trade unions appealed the decision.
In the Walmart/Massmart merger, trade unions wanted the merger application rejected on public interest concerns, in particular, the merger’s effect on employment and small and medium size enterprises. DTI, the Department of Economic Development and the Department of Agriculture, Forestry and Fisheries applied to the Competition Appeal Court to review the proceedings before the Competition Tribunal. In the end, the Competition Appeal Court found that there was insufficient evidence that the public interest concerns justified rejecting the merger application. The Competition Appeal Court did, however, order the reinstatement of 503 workers retrenched before the deal was struck on the basis that their retrenchment was linked to the merger.
What would have happened had Walmart approached Government and trade unions early on and addressed concerns on inclusive basis as did Anheuser?
The InBev/SABMiller merger raised competitive concerns about:
• the apple juice and cider markets
• bottle tops – because SAB's subsidiary is the dominant producer of bottle tops needed by its competitors
• local supply of all inputs from glass bottles to barley
• supply of hops and malt to small beer producers, because SAB is the only local supplier of these raw materials and imports are the only alternative
• cold space at outlets and foreclosure of craft beer producers
• B-BBEE (the existing Zenzele Scheme is due to expire in 2020)
• employment both within the merged firm and its distribution company, including owner drivers
• SAB’s 26.5% shareholding in Distell, leading to information exchange and collusion in the ciders market
• bottling operations for Coke and Pepsi, leading to information exchange
Unlike Walmart/Massmart, after engagements between the Minister of Economic Development and AB InBev, an agreement with Government on how the deal would be implemented to address these concerns was concluded in April 2016. The agreement included the conditions to the merger and addressed Government’s public interest concerns about the effect of the merger in South Africa, where SAB, a subsidiary of SABMiller, dominates the beer market.
The conditions finally agreed included commitment to general principles surrounding local inputs, increasing South African industrialisation, job creation, empowering black people as investors, suppliers and employees, fair labour practices, programmes investing in agriculture and promoting local manufacturing.
Specific conditions included:
• divesting from Distell
• no exchange of information about bottling operations by, amongst other things, separating bottling employees (Pepsi employees don’t do Coke bottling and vice versa), imposing confidentiality undertakings, training and a compliance programme
• Coleus selling to 3rd parties on a non-discriminatory basis - no exclusivity for parties and no inducements
• cold storage: the allocation of fridge space to be controlled by the outlet and not SAB
• where Merged Firm pays for fridges, at least 10% of the space has to be reserved for South African owned and produced ciders
• no retrenchments at all
• total employee count not to reduce for 5 years
• any retrenchments within 5 years to be presumed merger-specific, unless the merged firm proves otherwise
• all distributor’s employees who are retrenched because of termination of distribution agreements will be employed by the merged firm
• local input ratios will be maintained
• the merged firm must give 10% of fridge space at exclusive outlets to small beer producers and continue to supply hops to small beer producers forever
• commitments to supplying other inputs to small beer producers for 5 years
• proposing a new B-BBEE plan to Government within 2 years
• maintaining the regional head office in South Africa
• investing R1 billion in development programmes, including agriculture, enterprise development, alternative energy, recycling and education. These investment commitments include very specific objectives such as developing 800 emerging farmers and 20 commercial farmers to produce 475000 tons of barley and 2600 jobs
• Government and merged firm representatives to guide the spending of the R1 billion over next 5 years
• reporting annually on implementation of these conditions for 5 years
• providing a copy of the non-confidential conditions to trade unions
While the R1.5-trillion merger seems set to have a positive effect on South Africa and the South African economy, AB InBev has still to clear regulatory hurdles in the US and Chinese competition authorities. The deal is expected to go through later this year.