Heineken and Distell take aim at industry gorilla Anheuser-Busch

After tinkering around the fringes of the South African beer market for decades, Heineken will invest R24-billion into the country through the acquisition of a majority stake of wine, spirits and cider company, Distell.

The world’s largest privately owned brewer announced on Monday that it has the support of holders of 56% of Distell shares to buy the business at a price of R180 per share. 

The deal is complex and has several moving parts, all of which require shareholder and regulatory approval, which is expected to be granted towards the end of 2022. 

This includes the acquisition by Heineken of long-time partner Namibia Breweries’ 25% stake in the Heineken South Africa (HSA) business. This values HSA at about R260-billion. In addition, Heineken will acquire the 50.01% in Namibia Breweries that it does not own from controlling shareholder Ohlthaver & List Group, which will retain a small stake. 

Heineken will then contribute these acquired assets, plus its 75% directly owned shareholding in HSA and certain other fully owned export operations in Africa, into an unlisted public holding company called Newco for the time being. It will own a minimum of 65% of Newco, with the remainder held by Distell shareholders who elect to reinvest.

This comes six years after Heineken called time on its brandhouse joint venture with Diageo and Namibia Breweries, and 14 years after taking back its Amstel licence from the then SAB-Miller.

Heineken is making a big play for what it sees as a lucrative market and an important gateway into the rest of the sub-continent. “We are going to build a beverage champion in the region. We strongly believe in Africa’s potential, we are privately owned and have a long-term view,” says Roland Pirmez, Heineken’s president of Africa, Middle East and Eastern Europe.  

The multibillion-rand deal is clearly about being stronger together. 

Heineken intends to strengthen its distant #2 position in South Africa by bringing together strong brands in premium beer (Windhoek, Amstel, Heineken), cider, flavoured alcoholic beverages, wine and spirits, backed by a solid marketing and distribution capability. 

Distell has become a leaner, meaner and more efficient machine since CEO Richard Rushton took the reins in 2014 and attracted the attention of Heineken. 

“We have a strong cultural fit and all three companies have unique skills to offer. We have been impressed with what Distell has done — for instance in the wine market where it is reaching a younger consumer,” says Pirmez.

But, he adds, “both of us — Heineken and Distell — were subscale when it came to competing with the likes of AB-InBev.”

The goal is to combine two complementary route-to-markets, reaching more consumers and customers more often; acquire control of the beer market leader in Namibia, and strengthen its footprint across southern Africa to accelerate growth. 

“Together, this partnership has the potential to leverage the strength of Heineken’s global footprint with our brands to create a formidable, diverse beverage company for Africa,” says Rushton. 

“The beer market is under pressure globally,” adds Reuben Beelders, CIO at Gryphon Asset Management. “This is a good time for big players like Heineken to invest in the South African market and implement a multi-brand strategy.” 

Just under three quarters of Distell’s business is in South Africa, with just less than 20% from other African countries. In terms of categories, 36% is cider and RTDs, 39% spirits and 25% wine. 

“The parts that are attractive to Heineken include the strong South African cider and Ready-To-Drink business, which have big potential synergies and a multicategory pan-African business with distribution and potential revenue synergies,” said Bernstein analyst Trevor Stirling in a research note to clients. 

The deal will also see Distell restructure its business to house its non-SA assets, such as its premium whisky business, in a separate subsidiary named Capevin.

The whisky business is a good one, but it is not Africa-focused, Pirmez told Business Maverick.

“We think that the bits Heineken might want to eventually dispose of could include the wine businesses, both domestic SA and international with brands such as Nederburg; a big domestic SA spirits business focused on Cape brandy among others, and the international spirits business with brands such Amarula cream liqueur and Bunnahabhain Islay single malt,” Stirling added.

Bernstein believes that, at R180 per share, this is a strategically sensible move for Heineken, given that it will also have control of the important Namibia Breweries operations, boosting its overall African platform.

“Regulatory approval will need more time, but given ABI’s dominance of the South African market, we think it is unlikely that regulators will turn down the chance to strengthen the #2 player,” Stirling said. BM/DM