SABMiller, Coca-Cola agree concessions with South African regulators

SABMiller and its soft drinks partners, Coca-Cola Company and Coca-Cola SABCO, a Southern African bottler of Coke products have given in to concessions with the South African Competition Commission, which would pave way to the formation of Coca-Cola Beverages Africa, the largest Coca-Cola bottler in Africa that would control 40% of all Coke volumes sold on the continent and have annual sales of $2.9bn.

The concession agreed to and announced on Wednesday includes maintaining employee head-count at pre-merger levels for three years. In addition, employees in the bargaining unit will not be subjected to involuntary retrenchment as a result of the merger and retrenchment of senior management staff will be limited. The partners also agreed to set-up 800 million rand ($54m) to support small South African businesses.

In addition, the partners agreed to keeping the headquarters of the new Coca-Cola Beverages Africa in South Africa.

It also agreed to be 20% empowerment owned.

It will maintain and grow Appletiser’s 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”.

SABMiller, the brewer that is in the middle of being acquired by AB InBev agreed in November 2014, (before the merger announcement with AB InBev) to join resources with Coca-Cola and Coca-Cola SABCO to create what would be known as Coca-Cola Beverages Africa. The new entity will cover 12 markets in Southern Africa and East Africa.

Coke will hold 11.3% stake in the new venture, while the Gutsche Family Investments, owners of Coca-Cola SABCO will have 31.7% stake, with SABMiller holding the remaining 57%.

Coke insiders say the soft drinks giant has a change-of-control clause, which would allow it to buy SABMiller’s stake following AB InBev’s pending acquisition of SABMiller that is expected to close in the second-half of this year.

Coke’s plans are unknown at this point but some industry sources say a continuation of the current arrangement was unlikely. They point that AB InBev is a bottler of PepsiCo products in Latin America and it does not have a history of keeping joint-venture partnerships like SABMiller.

Coke has been untangling itself from holding large stakes in bottling operations because of the high cost required to run them. Instead it prefers to sell concentrates, beverage bases and syrups to its bottlers, which is more profitable. It means there could be an opportunity for another Coca-Cola bottler, such as Coca-Cola HBC, Coca-Cola Equatorial or Coca-Cola FEMSA to become part of the new company.

Coca-Cola declined to comment on its future plans for the stake, which some sources say could be worth as much as $3bn.

The South African Competition Commission gave its conditional approval to the merger in December 2015, agreeing to limiting job cuts to 250 and making sure the new partners buy cans, glass, sugar and crates from local suppliers.

A tribunal hearing, which is the last hurdle on the proposed merger, will begin on May 9. South African regulators have a history of taking its time over approving mergers and acquisitions partly because they have a public interest mandate to safeguard jobs in addition to ensuring there is competition.

SABMiller’s chief executive officer, Alan Clark, said: “I am very happy that we have reached this agreement and hope we now have a clear path to the conclusion of this transaction.”

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