Big news this week was that, after nearly 18 months since announcing its intentions, Heineken and Distell finally received merger approval from the Competition Tribunal. (Read more) Competition in the market place is supposed to be a good thing, so why was there such a long and extensive process to approve this deal?
In the developed world, competition is considered to be an excellent mechanism to maximise what can be demanded from an economic system and it is broadly accepted as the best available tool for promoting economic well-being. Regulation in the same environment is expected to have the opposite effect. (Read more) In developing countries, however, regulation is not necessarily a bad thing. Here competition is sometimes expected to extend to cooperation.
According to Tembinkosi Bonakele, the Commissioner of the South African Competition Commission: “Competition, in theory, leads to dynamism, growth and innovation. Of course, here I am not just concerned about growth, but also the levels of participation by various groups. The South African economy, even at its best of times, turned out to be quite exclusionary. Despite the authorities’ best endeavours, our economy remains highly concentrated with low levels of dynamism, persistent unemployment, inequality and poverty.”
Regulation of competition in our environment, therefore, ensures inclusivity. It is not only about a competitive business environment, but also about upliftment and creating opportunity for those who have been traditionally excluded. This is something that is quite clear from the conditions for the Heineken Distell deal.
The Competition Tribunal’s conditions generally align with those proposed by the Competition Commission and expect large investment into expansion programmes, new construction, commitment to significant procurement, employment conditions and black ownership. Retrenchments due to the merger have been limited to 166 between Heineken SA and Distell and fully voting staff shareholding of about 6% must be established within three months of closing the transaction. This shareholding equates to about R3.5 billion for South African employees of which a majority shall always be “historically disadvantaged individuals”. (Read more)
With Distell’s immaculate balance sheet after 18 months of not paying dividends, the new Heineken-Distell merger should be on a strong foot against its main competition, South African Breweries, while also playing an important role in achieving equity and efficiency in the South African economy.
We can expect some interesting development in the months ahead and I trust that other than the initial benefits, there will be more, exceptional opportunities for South Africans, down the line.