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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No:
107/LM/Dec12
[016055 ]
In the matter between:
Diageo Africa B.V.
Acquiring Firm
And
Newshelf 1167 (Pty) Ltd
Target Firm
Panel : Andreas Wessels (Presiding Member)
Anton Roskam (Tribunal Member)
Mondo Mazwai (Tribunal Member)
Heard on : 19 February 2013
Order issued on : 19 February 2013
Reasons issued on : 15 April 2013
Reasons for Decision
Approval
1. On 19 February 2013 the Competition Tribunal (th e “Tribunal”)
unconditionally approved the acquisition by Diageo Africa B.V. (“Diageo
Africa”) of Newshelf 1167 (Pty) Ltd (“Newshelf”).
2. The reasons for the approval of the proposed tra nsaction follow.
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The Parties and their activities
3. The primary acquiring firm is Diageo Africa, a c ompany incorporated and
registered in the Netherlands. Diageo Africa is a w holly-owned subsidiary
of Selviac Netherlands B.V. which is in turn indirectly owned by Diageo Plc
(“Diageo”). Diageo is a public company listed on th e London Stock
Exchange and the New York Stock Exchange and is acc ordingly not
controlled by any one firm. Diageo has subsidiaries
1 in England, the
United States of America, the Netherlands, Scotland , Ireland and France,
which are primarily involved in the production, marketing and distribution of
alcoholic beverages.
4. Diageo Africa brews, markets and distributes bee r and a variety of other
alcoholic beverages in a number of countries throug hout the world. In
South Africa, Diageo Africa’s alcoholic beverages a re marketed and
distributed by Brandhouse Beverages (Pty) Ltd (“Bra ndhouse”). These
products include a number of flavoured alcoholic be verages (“FABs”) such
as Smirnoff Spin, Smirnoff Storm, Archers Aqua, Cap tain Morgan Cola,
and J&B Soda. Diageo Africa also produces, markets and distributes a
number of spirits such as Johnny Walker Scotch Whis ky, Captain Morgan
Rum and Smirnoff Vodka as well as wine products on a global basis.
5. The primary target firm is Newshelf, a company i ncorporated in terms of
the laws of the Republic of South Africa. Newshelf is owned by Pestello
Investment Inc (“Pestello”), which is ultimately co ntrolled by an off-shore
investor, namely, Mr. Vijay Mallya. Newshelf contro ls Reldann Investment
(Pty) Ltd (“Reldann”), which in turn controls Unite d National Breweries
(SA) (Pty) Ltd (“UNB”). UNB controls National Sorgh um Breweries
Properties (Pty) Ltd (“NSB”). Newshelf and its subs idiaries are hereinafter
referred to as the UNB Group.
6. The UNB Group manufactures traditional African s orghum beer,
Umqombothi and Mageu. These products are distribute d from four
1 See annexure 1 to form CC4(2) for a list of Diageo’s subsidiaries.
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breweries and various distribution depots situated throughout South Africa.
The UNB Group also recently introduced a new produc t called City Jive,
which is categorised as a FAB. City Jive is current ly being marketed in
Gauteng, Mpumalanga, KwaZulu-Natal and the Eastern Cape.
Proposed transaction and rationale
7. In terms of the proposed transaction, Diageo Afr ica intends to acquire a
50% shareholding in Newshelf from Pestello. On comp letion of the
transaction, Newshelf will be operated as a 50/50 j oint venture and will be
jointly controlled by Diageo Africa and Pestello.
8. Diageo Africa’s rationale is that this transacti on will provide it with an entry
point in relation to sorghum beer, which it may be able to leverage in the
future across other countries in the rest of Africa.
9. From Pestello’s perspective, this transaction of fers an opportunity to be
part of a multinational company and to grow its sor ghum beer brands in
South Africa.
Competition analysis
10. The merging parties are both involved in the pr oduction and supply of
alcoholic beverages, i.e. Diageo Africa in clear be er, which is
characterised by its see-through nature
2 and FABs and the UNB Group in
sorghum beer, which is opaque, thick and frothy in nature and FABs.
11. In defining the relevant product market the Com petition Commission
(“Commission”) assessed whether sorghum beer and cl ear beer are in the
same product market. In this regard the Commission found that sorghum
2 Diageo's beer brands in South Africa are "Guinness" and "Kilkenny" and are distributed by
Brandhouse, a joint venture company, jointly contro lled by Diageo, Heineken International NV
and Namibian Breweries Limited. Brandhouse also dis tributes Windhoek Lager, Windhoek
Light, Heineken, Amstel and Tafel.
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beer and clear beer differ in terms of the followin g: (i) each appeals to
different customer segments (sorghum beer is mostly consumed by
consumers in the lower LSM category); (ii) packagin g (sorghum beer is
packaged in plastic containers or paper-based carto ns of different sizes);
(iii) distribution (sorghum beer is traded mostly t hrough the informal sector
whereas clear beer is distributed through the forma l sector e.g. to retail
customers and the hospitality industry); (iv) appea rance (sorghum beer is
an opaque, thick and frothy liquid which can be messy to drink and is more
likely to make the drinker feel full); and (v) pri cing, (i.e. there is a
significant price difference between sorghum beer and clear beer).
12. Based on these factors the Commission concluded that sorghum beer and
clear beer are in separate product markets and that there is no overlap
between the activities of the merging parties in re lation to these two types
of beers. Further, customers of the UNB Group conta cted by the
Commission confirmed that they consider sorghum bee r and clear beer to
be in separate markets.
13. In respect of FABs, the Commission identified a horizontal overlap in the
activities of the merging parties as they both manu facture and supply
FABs. As indicated above, Diageo's FABs include Smi rnoff Spin, Smirnoff
Storm, Archers Aqua, Captain Morgan Cola, and J&B S oda. Newshelf has
recently introduced "City Jive" which may be regarded as a FAB.
14. The Commission found that there are very broad ranging categories within
the market for FABs (i.e. aggregation of malt, wine , spirit and other types
of premixed drinks), but did not find it necessary to come to a definitive
conclusion on the relevant product market as the ov erlap between the
activities of Diageo Africa and the UBN Group is very minimal.
15. Regarding the geographic market, both the Commi ssion and the merging
parties were of the view that the market is nationa l as suppliers of FABs
parties were of the view that the market is nationa l as suppliers of FABs
distribute these products throughout the Republic of South Africa.
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16. However, there is no need for us in this case t o take a definitive view on
whether or not a separate product market exists for FABs since this does
not alter our ultimate conclusion on the competitive effects of the proposed
transaction.3
17. The merging parties’ national post-merger marke t share in FABs is
approximately 19%, with an accretion of less than 1 %, attributed to
Newshelf's City Jive. Competitors of the parties in clude Distell, SAB,
Halewood International and others. Given the limite d product overlap
between the activities of the merging parties, the proposed merger raises
no likely competition concerns when potential alter native relevant markets
are considered.
Third Party Concerns
18. A letter was submitted to the Commission after the Commission had taken
a decision to refer its recommendation to the Tribu nal by a third party who
requested that its identity remain anonymous. The Commission advised
the third party to make its submissions to the Trib unal. On the eve of the
hearing, the Tribunal received a letter from the sa me third party, again
requesting its identity to remain anonymous.
4 In that letter the anonymous
party made it clear that it did not wish to formall y intervene in the matter
but raised the following concerns regarding the pro posed transaction,
which are substantially similar to the ones raised belatedly with the
Commission:
(i) Food security – as sorghum beer is produced fro m sorghum grain,
Diageo would, post-merger, expand its operations an d productions
throughout Africa, which expansion would invariably lead to an
increase in the consumption of sorghum raw material in South
Africa which might lead to shortages of sorghum grain.
3 Also see the Tribunal’s decision in the matter inv olving Distillers Corporation (SA) Ltd and
Stellenbosch Farmers Winery Group Ltd, Case No: 08/LM/Feb02.
4 Letter dated 18 February 2013.
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(ii) Effect on prices of sorghum based products - t he increase in demand
for raw sorghum grain by Diageo post-merger will place pressure on
the price and availability of raw sorghum in the So uth African
market, which in turn will lead to increases in the prices of sorghum
based products.
(iii) Portfolio effects – UNB is the dominant produ cer of sorghum beer in
South Africa and this transaction will, post-merger , afford Diageo a
dominant position in the sorghum beer market. Diage o would be
able to leverage this dominant position and induce customers to
purchase its complete line of alcoholic beverages p roducts, which
might result in competing suppliers being foreclose d from access to
a significant segment of customers in the relevant market(s).
(iv) Expanding the monopoly profits and cross subsi disation - as a near-
monopolist producer of sorghum beer, Diageo will be in a position
to increase prices in this market and divert some o f its monopoly
profits to subsidising the supply of its other alco holic beverage
products in order to eliminate competitors or potential competitors in
the market.
19. At the hearing we requested the Commission and the merging parties to
respond to the concerns raised. However, there is n o need for us to deal
with these issues in any detail in these reasons. A fter hearing the
responses from the Commission and the merging parti es, we were
satisfied that the concerns raised were either not merger-specific (i.e. the
proposed merger is not the cause of the concerns) o r not supported by
any evidence that the proposed transaction would re sult in a substantial
prevention or lessening of competition as alleged b y the anonymous
party. 5 While we accept that there may be exceptional circ umstances
where submissions or a complaint may be made anonym ously, we expect
a party claiming anonymity to show good reason for the claim. In this case
that was however not shown.
that was however not shown.
5 See transcript pages 4 to16.
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20. Nevertheless, despite the late submission and u nsubstantiated anonymity
claim, we requested the merging parties and the Com mission to address
the submissions made, and as stated above, were sat isfied with their
answers and that the proposed transaction was unlik ely to substantially
prevent or lessen competition.
21. We therefore agree with the Commission’s concl usion that the proposed
merger is unlikely to substantially prevent or less en competition in any
relevant market.
Public interest
22. The merging parties confirmed that the proposed transaction will have no
adverse effect on employment and will not result in any retrenchments in
South Africa.
6 The proposed transaction raises no other public in terest
concerns.
Conclusion
23. For the reasons mentioned above, we approve the proposed transaction
unconditionally.
_______________ 15 April 2013
Mondo Mazwai Date
Anton Roskam and Andreas Wessels concurring
Tribunal researcher: Ipeleng Selaledi
For Diageo: Anthony Norton of Nortons Inc.
For Newshelf: Heather Irvine of Norton Rose
For the Commission: Selelo Ramohlola
6 See merger record, pages 9 and 74. Also see paragraph 8.1 of the Commission’s merger
report.