SABMiller has come up with a rather interesting BEE deal said to cost up to R6 billion in share value. Interesting that a deal of this magnitude can be cooked up in such depressed economic times but also that the deal will cost new BEE partners way less than a fraction, if that. Talk about financial genius.
My observation or opinion on this deal though is…
First it is important to mention that SABMiller has a 3 tier liquor license in South Africa (i.e.) license to farm ingredients or beer raw materials, license to manufacture/produce the beer and thirdly a license to warehouse and distribute the beer. It is through owning the third license (i.e.) warehousing and distributing the beer that SAB has managed not only to dominate but to literally own the market/retail space in SA.
Now this 'wow deal' is happening at retail level with ordinary South Africans. As mentioned in print media, there are no politicians or business heavyweights in this deal so for all-intents-and-purposes; this deal may be viewed as truly broad base. However, the trick about this deal is that by and large the new shareholders are themselves shebeen or tavern owners who stock and sell SAB products. Up to 40% in shares is available to shebeen and tavern owners. Not only will liquor retailers be able to participate but also entities that have applied and can provide evidence that a liquor license has been lodged will be eligible to participate.
Talk about killing current and future competition. Of course politicians don’t own Shebeens/Taverns (I’m open to a different view) and therefore selling shares to stockist to me seems like such a subtle manner to own them. These are golden handcuffs and add to that the fact that shareholders will only be able to sell their shares after 10yrs. How would you buy other liquor products if you know they will affect your share value? (e.g.) How can a Vodacom shareholder have an MTN cell phone contract? Even if the argument could be that other brewers may do the same if they wish, you will find that if you go to many taverns you will see that SAB products are dominating space whether it is a storeroom or a fridge. This is a tricky deal for the competitions’ commission. I’d like to see what they make of it. But what a way to fend off competition- Remember, Heineken is said to be preparing its plant to be up and running in 2010.
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