THE takeover of South African firms by international companies excites a lot of passion. There was heated debate when Massmart became a subsidiary of US retail giant Walmart. Stakeholders raised concerns when AgriGroupe went off with Afgri, Du Pont Pioneer with a majority stake in Pannar, Glencore with Xstrata and Shanghai Zendai with a big chunk of Modderfontein. Now along comes the so-called MegaBrew deal, the takeover of SABMiller by Anheuser-Busch InBev (AB InBev), one of the biggest transactions in global corporate history. Strictly speaking, SABMiller is not South African. Its primary listing is in London. The most significant equity block is held by Altria (26.99%, the company’s latest annual report shows), followed by a company associated with the Santo Domingo family (13.99%).
Readers of the fashion media will be familiar with the Santo Domingo name for other reasons. The Public Investment Corporation owns just more than 3%. But SABMiller is, or was, one of the most South African companies imaginable with its Johannesburg roots, its production line of corporate stars and rainbow nation advertisements. History aside, the company sells more than 90% of the beer consumed in SA, according to a company presentation made last year.
This is a significant company by any measure, with touchpoints across many value chains. The implications of its future ownership by AB InBev will be analysed carefully by the authorities.
Much of the debate, deliberation and negotiation required for MegaBrew to get regulatory approval in SA will take place through the competition authorities. They are required to assess a merger’s effects on competition and the public interest. It is common practice for diverse organisations — from nongovernmental organisations to business rivals — to direct their concerns about the public interest effects to the competition authorities. This is the case for all mergers, but cross-border transactions bring another layer to the analysis because of fears that domestic production and employment will be replaced by the acquirer’s international operations.
The competition authorities can only consider a closed list of public interest issues, namely the effect of a transaction on a particular industrial sector or region; employment; the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become or remain competitive; and the ability of national industries to compete in international markets. It is not difficult to imagine how some of these issues may arise in the MegaBrew tie-up.
Earlier this year, the Competition Commission published draft guidelines on the methodology applied in its assessment of public interest in mergers. The guidelines give an indication of possible remedies that could be imposed as conditions to tackle any public interest harm. They also confirm the principle that the conditions imposed on a deal must remedy public interest harms that arise as a consequence of the particular transaction, as opposed to trying to address generic problems in the industry, or even the economy, as a whole.
It is important that the final guidelines provide as much direction and certainty as possible. But it is also clear that the matter still boils down to a case-by-case analysis. The incentives driving the behaviour of the postmerger company, the credibility of an acquirer’s submissions or the evaluation of the substantiality of effects across diverse value chains are not matters that can be easily generalised.
The question also remains whether SA needs to develop a foreign investment policy that provides a framework for public interest matters beyond the closed list of issues considered by the competition authorities. It would be useful for such a framework to also outline, in positive terms, the ways in which the country provides support and incentives for foreign investment.
This column first appeared in Business Day on 24 November 2015. Image source: Freepik