COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 17/LM/Feb08
In the matter between
BrandCo, Currently Heineken (Pty) (Ltd)
and Diageo South Africa Primary Acquiring Firms
And
Brandhouse Beverages (Pty) Ltd
And Amstel Licence Primary Target Firms
Panel : Y Carrim (Presiding Member); U Bhoola (Tribunal Member) and M
Mokuena (Tribunal Member)
Heard on : 09 April 2008
Decided on : 09 April 2008
Reasons Issued : 14 May 2008
Reasons
Approval
[1] On 09 April 2008 the Competition Tribunal issued a Merger Clearance Certificate
approving the merger between BrandCo, Currently Heineken (Pty) (Ltd) and Diageo South
Africa and Brandhouse Beverages (Pty) Ltd and Amstel Licence unconditionally. The
reasons appear below.
Parties
[2] The primary acquiring firm is BrandCo, Currently Heineken (Pty) (Ltd) (“BrandCo”)
and Diageo South Africa (Pty) Ltd (“SpiritsCo”). 1 BrandCo is currently a wholly owned
subsidiary of Heineken International B.V. (“Heineken”). 2 BrandCo is a special purpose
vehicle utilised specifically for this transaction.
1 SpiritsCo does not control any firm. SpiritsCo is a wholly owned subsidiary of Diageo Great Britain Ltd (“Diageo
GB”). Diageo GB is a wholly owned subsidiary of Grand Metropolitan Public Limited Company, which is in turn a
wholly owned subsidiary of Diageo Holdings Ltd. Diageo Holdings Ltd is wholly owned subsidiary of Diageo Plc.
Diageo Plc controls Highlands Holding B.V. (“Diageo Highlands”)
2 BrandCo do not control any firm. Heineken is a wholly owned subsidiary of Heineken N.V. which is in
turn controlled by Heineken Holding N.V. (“Heineken Holding”). Heineken Holding is ultimately controlled by
L’Arche Holding SA (“L Arche”), a Swiss holding wholly owned by the Heineken family
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[3] The target firm is Brandhouse Beverages (Pty) Ltd (“Brandhouse”) and the Amstel
Licence. Brandhouse is jointly controlled by Heineken International B.V. (“Heineken”);
SpiritsCo and Namibia Breweries Ltd (“NBL”). 3
Transaction
[4] The parties to the proposed transaction have decided to restructure their existing
cost sharing joint venture relationship and establish a new profit sharing arrangement. 4 In
terms of the proposed transaction, Diageo Highlands and NBL will each acquire shares in
BrandCo from Heineken with the resultant shareholding in BrandCo being as follows: Diageo
Highlands 42.25%; Heineken 42.25% and NBL 15.5%. BrandCo will then acquire half of the
share currently held by NBL in Brandhouse and the remaining half of the share in
Brandhouse will be acquired by SpiritsCo. On completion of the transaction the shareholding
in Brandhouse will be BrandCo and SpiritsCo, each having a 50% shareholding in
Brandhouse. The structure post transaction can be depicted as follows:
NBL Diageo Highlands Heineken
15.5% 42.5% 42.5%
Brandco
75%in supplyco
25% in
Supplyco
supplyco5
50% 50%
3 Heineken, Diageo SA and NBL each hold 33.33% shares in Brandhouse. NBL is controlled by NBL Investment
Holding Ltd (“NBLIH”). NBLIH is jointly controlled by O&L Beverages (Pty) Ltd (“O&L Beverages”) and Diageo
Heineken Namibia B.V (“Diageo Heineken Namibia”). O&L Beverages is controlled by Ohlthaver & List Finance
and Training Corporation Ltd (“Olfitra”). Diageo Heineken Namibia is jointly controlled by Heineken and Diageo
Highlands.
4 In 2004 Diageo plc, Heineken International B.V and Namibia Breweries Ltd established a joint venture
company in South Africa called Brandhouse Beverages (Pty) Ltd. Each parent company holds one third of the
issued share capital of Brandhouse and therefore jointly controls Brandhouse. The objective of Brandhouse was
to operate as a cost sharing joint venture, for the purpose of consolidating the marketing, sales, physical
distribution and other administrative functions of certain brands of the parent companies in South Africa.
5 Supplyco to design, build and operate a brewery in South Africa for supply of certain
Brandco brands to Brandhouse.
2
Spiritsco
Brandhouse
Source: Merging Parties
Parties Activities
[5] BrandCo is a special purpose vehicle to be utilised for the purposes of this
transaction and as such it has no activities. The Heineken Group is active on a world wide
basis in the brewing, commercialisation and distribution of beer. The main Heineken brands
which are sold on a world wide basis are Heineken and Amstel. The Diageo group brews,
markets and distributes beer on a world wide basis. The Diageo group beer brands sold in
South Africa include Guinness Extra Stout (bottled), Guinness draught (cans and kegs) and
Killarney Irish ale (cans and kegs). In addition to beer products, the ready to drink spirit
based products (“RTD products”) which Diageo sells in South Africa include Smirnoff Spin,
Smirnoff Storm, Smirnoff Twist and Archers Aqua. The Diageo brand which is sold in South
Africa is Foundry.
[6] Brandhouse is a cost sharing joint venture established for the purpose of
consolidating the sales, marketing and distribution functions of the parent companies, being
Heineken, Diageo and NBL. Brandhouse currently markets, sells and distributes beer and
Scotch whisky in South Africa. 6 The joint venture was established in 2003.
Rationale of transaction
[7] The parties submit that in order to build on the commercial success of Brandhouse,
their joint venture company, they have decided to restructure their arrangements in advance
of the expiry of the initial term. 7 Additionally, in order to incentivise each party’s commitment
to the existing cost sharing arrangement, the parties have decided to enter into the Brandco
joint venture under which each party will share in the profits of the combined sales of all the
parties’ beer, cider and RTD brands in South Africa. The parties submit that the transaction
will also result in various synergies for them including incremental sales volumes from
investing in the route to market, long term distribution savings and enhanced brand quality
and a deeper penetration of the market.
Competition Analysis
6 The Beer includes Windhoek, Heineken, Guinness and Kilkenny. The Scotch whisky includes Johnnie Walker,
Bells, and J&B, White Horse and Dimple as well as a broad selection of single malt whiskies. Brandhouse also
markets, sells and distributes other products in South Africa such as Smirnoff Vodka, Jose Cuervo Tequila,
Tanqueray Gin, Captain Morgan Black Label, Spiced Gold Rum, Foundry Cider as well as RTDs including
Smirnoff Spin, Smirnoff Storm, Smirnoff Twist and Archers Aqua.
7 The initial term of the existing costsharing Brandhouse joint venture arrangement expire in July 2009.
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[8] The Commission found that there is an overlap in the activities of the merging firms in
respect of the supply of beer in South Africa. In line with the European Commission decision
in Heineken and Bayerische Brau Holdings/JV the Commission defines the market as the
market for the supply of beer. The Commission’s investigation revealed that the effect of
combining the merging firms’ beer operations in South Africa is that they will have 9.9%
postmerger market share. This 9.9% market share would be made up of 7.5% of Heineken,
1% of Diageo plc and 1.4% market share of NBL. The Commission is of the view that the
proposed transaction is unlikely to raise any competition concerns, as the market is
dominated by SABMiller with approximately 90% of the market. Furthermore the
Commission submits that the proposed transaction is likely to create a firm whose ability to
compete with SABMiller will be enhanced, particularly in the area of distribution of beer. We
agree with the Commission’s conclusion that the merger is pro competitive.
Public interest
[9] There are no public interest issues.
Conclusion
[10] Based on the above the transaction will not result in a substantial lessening or
prevention of competition in the identified markets and is accordingly approved
unconditionally.
_________________ 14 May 2008
Y Carrim Date
U Bhoola and M Mokuena Concurring
Tribunal Researcher : J Ngobeni
For the Merging Parties : Webber Wentzel Bowens
For the Commission : Makgale Mohlala
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