Business

Heineken’s big plans in South Africa

Now that Dutch brewing giant Heineken’s acquisition of local brewer Distell has been completed, the company is looking to use South Africa as a launchpad into the rest of Africa.

Heineken is a family-controlled Dutch brewing company that has been brewing beer in South Africa for over a decade.

At the end of April, Heineken finalised its acquisition of Distell, South Africa’s biggest wine exporter and the owner of brands such as Klipdrift, Amarula and Savanna.

Heineken’s achievement of buying Distell did not come easy – or cheap.

The company announced its plans to acquire a majority (65%) stake in Distell in 2021 to compete with rival Anheuser-Busch InBev, which houses South African Breweries.

Heineken CEO and chairman Dolf van den Brink described the transaction as a three-way merger between Namibia Breweries, Distell and Heineken SA.

Together, the three companies will create a new business, “Heineken Beverages”.

News24 reported that Heineken Beverages combines Distell’s wine, spirits and cider business with 100% of Heineken South Africa and Heineken’s export markets in other African countries and 59.4% of Namibia Breweries.

Heineken’s bid had to go through the Competition Commission first, which recommended the Competition Tribunal have the final say. 

This is because the merger would give Heineken nearly 65% of the cider market in South Africa. 

Heineken agreed to divest its cider brand Strongbow in South Africa and other countries to keep the market competitive.

This divestment convinced the Tribunal to approve the acquisition – but not without conditions.

SOURCE: Shutterstock/MD Photography

Bloomberg reported the following conditions that are attached to the €2.4 billion deal.

  • The parties agree to maintain employee headcount for five years.
  • More than R10 billion must be invested over five years to maintain and grow the capacity of operations and related facilities in South Africa.
  • An employee share-ownership program must be started and transfer more than R3 billion of equity to workers of the new entity’s South African operations.
  • A supplier development fund for small- and medium-sized enterprises of R400 million must be established.
  • A further R200 million must be spent to promote growth initiatives within South Africa.
  • R175 million must be invested in a tavern transformation program to create safe, responsible, and sustainable businesses.
  • An innovation, research, and development hub based in South Africa must be set up for the African region within five years.

Heineken has already made progress on achieving some of these conditions, as it pledged R15.5 billion at the 2023 South African Investment Conference (SAIC) in April. This pledge is to be invested in the country over five years and spread across different projects.

Where to now?

SOURCE: Shutterstock/Africanstar

Van den Brink told 702’s The Money Show that Heineken views South Africa as the most important market on the continent and, therefore, a platform for the rest of Africa.

“We are delighted to welcome over 5,400 talented employees of Distell and Namibia Breweries into Heineken and look forward to adding more than €1 billion in net revenue and €150 million operating profit to our African footprint,” Van den Brink said in a press release.

“By combining the strengths of all three entities, we can leverage our expertise and resources to foster growth, create jobs, and contribute to the region’s overall economic development.”

Heineken has a footprint in central and west Africa but plans to expand into southern and eastern Africa, where it currently has little to no presence.

Distell has already entered these markets and therefore offers Heineken the skills and reach to achieve these plans.

Heineken also has goals to expand locally through its R15.5 billion SAIC pledge. 

Heineken Beverages recently said it would be moving ahead with “a significant public interest package which is a vote of confidence in the South African economy”.

Dolf van den Brink

This package includes the following.

  • An investment plan of more than €500 million over five years.
  • Investing more than €250 million towards the construction of a new brewery and maltery.
  • Establishing a €20 million supplier development fund and contributing €10 million towards a localisation and growth fund in South Africa over five years.
  • Creating an Innovation and Research & Development (R&D) hub for the region.
  • Implementing a ‘Tavern Transformation’ programme which will support around 1,000 tavern owners to become licensed, sustainable local enterprises over a five-year period.

Van den Brink said Heineken’s presence in South Africa would also allow for a “stronger foundation” to be competitive, which local consumers will ultimately benefit from.

Currently, rival AB InBev dominates the South African market, with its share in the market estimated at 20% to 25%.

However, the Financial Mail reported that Heineken’s Distell deal could allow the brewer to take over 33% of the market in a few years.

This would be an impressive feat, as AB InBev is the world’s largest and most profitable brewer, producing local favourites such as Castle, Corona, Stella Artois, Brutal Fruit, Black Label and Flying Fish.

News24 reported that, as part of the Heineken deal, Distell had been delisted from the Johannesburg Stock Exchange and split into two unlisted entities.

When the delisting was announced, shareholders were allowed to remain investors or take R165 per share in cash (or a combination of cash and shares). Heineken will hold a minimum of 65% in Heineken Beverages.

Distell’s other unit, Capevin (now CVH Spirits), includes Distell’s premium Scotch whisky brands and the Gordon’s Gin licence. Distell shareholders were allowed to take shares in Capevin or get R15 per share.

Johann Rupert-linked Remgro holds a controlling stake of more than 50% in Capevin and has a 31.7% effective interest in Distell. 

Johann Rupert

Investing in South Africa

When asked about concerns over South Africa’s power and water supply problems, Van den Brink agreed it is a big problem.

He said it is a systemic issue that needs to be addressed systemically.

However, he takes comfort in seeing increased private investment in renewable energy projects adding new capacity to the grid.

Van den Brink said Heineken is also trying to do its part in this, having opened one of the largest solar plants of any brewery across Africa in 2022.

This plant comprises 14,000 solar panels capable of producing 6.5 MW of electricity.

The brewer has also announced its commitment to become net zero by 2030.

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