South African regulator gives its conditional approval to SABMiller, Coca-Cola deal

South Africa’s Competition Tribunal, said on Tuesday it has given its nod to the merger of SABMiller’s South African soft drinks business with Coca-Cola’s South African operation and that of Coca-Cola SABCO to create what would be known as Coca-Cola Beverages Africa, the continents biggest coke bottler with 40% of all Coke’s volumes sold in Africa.

However, the anti-trust regulator said its approval comes with conditions. It includes maintaining employment at current levels for three years; access to retail cooler space for smaller competitors; localization of production of Coca-Cola products and Appletiser brands; and the location of its headquarters and tax residency in South Africa.

In addition, in a separate deal struck with the South African government to expedite the approval process earlier this month, the merging parties agreed to invest R400 million ($26.5m) each in two groups to support agriculture, particularly to support disadvantaged developing farmers and small suppliers, and to develop downstream distribution and retail support for an additional 25,000 black-owned retailers of CCBSA’s products. The parties also agreed to increase black ownership of CCBSA to 20% and sell a 20% shareholding in Appletiser South Africa to black shareholders.

The parties welcomed the Competition Tribunal’s approval saying in a statement they expect the transaction to complete as soon as practicable.

“Today’s announcement ensures that the creation of Coca-Cola’s largest bottling partner in Africa will strengthen our business while also closely aligning with the South African government’s national imperatives for social and economic development,” Coca-Cola Chief Operating Officer James Quincey said.
“This agreement marks the latest important step in that journey.”

SABMiller, which is in the process of being acquired by Anheuser-Busch InBev (AB InBev), agreed in November 2014 (before the merger announcement with AB InBev) to merge its South African soft drinks operations with Coca-Cola’s South African bottling unit and Coca-Cola SABCO, a major bottler of Coca-Cola products in Southern Africa, to create what would be known as Coca-Cola Beverages Africa.

The enlarged group would be headquartered in South Africa but would serve 12 high growth markets in Southern and East Africa, and will have annual sales of $2.9bn.

“Given the scope and reach of the new company, and its commitment to being headquartered in South Africa, the merger helps position the country as the undisputed economic gateway to Africa,” Gutsche Family Investments chairman Phil Gutsche said.

The bottling deal scaled the first hurdle in December 2015 when the South African Competition Commission gave its conditional blessing to the combination. The Tribunal’s approval removes the final hurdle to the merger becoming a reality.

South Africa has a history of having a lengthy anti-trust approval process because the regulators have a public interest mandate to safeguard jobs in addition to preventing anti-competition.

The South African Competition commission investigates deals for any anti-trust issues and makes recommendations to the Competition Tribunal, which makes the final ruling.

The combined companies will have equity stakes as follows: Coca-Cola will own 11.3% of the new entity; the Gutsche Family Investments, owners of Coca-Cola SABCO will control 31.7% of the new company while SABMiller will retain 57% stake.

Sources say Coca-Cola has a Change-Of-Control Clause (right to buy SABMiller’s stake in the new entity) in the event SABMiller is acquired by another company, in this case AB InBev. Neither Coke nor AB InBev has made any statements to indicate what action, if any they will take when the merger of AB InBev and SABMiller concludes in the second-half of this year.

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