No SABMiller payday soon as regulators loom for ABInBev deal

SABMiller shareholders expecting to pick up their generous cash payout from ABInBev within the 12 months indicated recently by the merging parties may have to prepare themselves for a much longer wait.

Judging by the length of time it's taking the Competition Commission to process the restructuring of SABMiller's African Coca-Cola bottlers (a far simpler transaction) it could be a very long time before SABMiller shareholders see payday.

The acquisition of SABMiller by ABInBev has not even been filed with the local regulators yet.

It's been a year since SABMiller announced plans to restructure its Coca-Cola bottling assets and those of the Gutsche family to create Coca-Cola Beverages Africa, which will serve 12 countries and account for around 40% of all Coca-Cola beverage volumes in Africa.

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When SABMiller CEO Alan Clark announced the deal in November last year, he said regulatory approval was expected to take six to nine months. Earlier this month, SABMiller's head of investor engagements, Gary Leibowitz, told analysts that the transaction was expected to close within the next three to four months. This might be a bit ambitious given that the Competition Tribunal still has to hear the matter.

The proposed restructuring, which is not hugely complex, has got stuck at the Competition Commission. The commission will not say why it has had to ask for numerous extensions to the 40 business days it is given to consider a large merger. Each of these extension applications has to be approved by the merging parties and the Competition Tribunal.

Commission spokesman Itumeleng Lesofe confirmed last week that the deal was still being investigated. "The commission cannot provide an exact date for the conclusion of the investigation, save to say [ it] is at an advanced stage."

Katishi Masemola, general secretary of the Food and Allied Workers Union, said the union had made a submission to the commission urging thatapproval should be given only with strict conditions relating to public interest and competition. He mentioned the need to address the concerns of workers as well as the owner-drivers who are currently protesting. They believe they are not equal partners in the arrangement with SAB's bottlers, that they are forced to travel long distances and that they are unable to make the sort of profit necessary to pay for the purchase and running of the trucks. Masemola hopes to intervene in the tribunal's hearings on the matter when they eventually take place.

The delay has prompted speculation that Minister of Economic Development Ebrahim Patel has decided to get involved. When approached for comment, a spokesperson said the minister was too busy to respond to questions on whether he believed the Coca-Cola restructuring raised competition or public interest concerns.

SABMiller did not respond to a request for comment last week, but at its recent results teleconference, Domenic De Lorenzo, group chief financial officer, told analysts that it was a high-profile transaction in South Africa and "therefore it is quite right for the review to happen. So, we're not surprised that it has taken so long." Regulators in all other affected countries had approved the deal, he added.

One major complication for the deal is the possibility that the takeover of SABMiller by ABInBev, which has significant Pepsi bottling interests, could result in Coca-Cola forcing SABMiller to relinquish its Coca-Cola bottling operations.

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Trevor Sterling, an analyst at Bernstein Research, said Coca-Cola was likely to be unhappy with both the scale of the conflict of interest and the idea of a potentially hostile acquirer being an anchor bottler in Africa. "We think it's likely that Coke will exercise change of control clauses to force the disposal of SAB's South African bottling operations [which are run completely separately from beer] as well as some other small standalone bottling operations." A possible buyer would be Coke itself with the Gutsche family.

However, although this will be a complication for SABMiller, Coca-Cola and ABInBev, it should not affect the commission's current investigation.

Patel has a history of intruding in high-profile mergers, which offer seemingly cheap populist victories, such as those achieved in the Walmart-Massmart merger. "The gains achieved in the Walmart deal [the rehiring of 503 retrenched workers and setting up a R250-million development fund] were extremely expensive in terms of the lengthy delays involved and the huge uncertainty Patel has introduced into commission proceedings," said one analyst.

At the recent Brics conference, Patel stressed his determination to use the competition authorities to secure public interest issues. "Our use of public interest conditions in merger approvals has contributed to saving jobs, developing and deepening local supply chains, and supporting indigenous entrepreneurs who were excluded from the mainstream economy under apartheid."

No doubt ABInBev's army of advisers will be watching the Coca-Cola proceedings for lessons on how to navigate these uncertain political waters.