Intrigue surrounds Distillers-SFW merger
By Arnold Kirkby | 13 November 2000
Both companies are under attack and being scrutinised on various fronts from the multinational Seagram Group and the UK cider giant HP Bulmer as well as the South African Competition Tribunal.
Some industry observers saw this as a possible test case for the relatively new Competition Act, which was introduced in 1998 and amended last year.
SFW is also involved in two civil litigations involving Seagram's subsidiary, Seagram Africa, in the Cape High Court.
Together with Distillers, SFW is fighting off a bid by Seagram Africa, to have an interdict against their merger invoked, while in another court, it is involved in a wrangle over the Martell Cognac brand. SFW has had rights to the brand since the early 1960s, but it is the latest negotiated contract dating back to 1990 which is now being contested.
"Commission spokesperson, Karin Coode confirmed that the Commission had also been approached about the Distillers-SFW merger plans"
While the court battles were being conducted in the stately wood panelled courtrooms on Friday, shareholders of the two companies met at their respective head offices in Stellenbosch, a short 30-minute drive from Cape Town.
Both groups of shareholders voted overwhelmingly in favour of the merger according to SFW's spokesman, Bennie Howard. "At SFW we had a 99% vote in favour of all the proposals affecting the merger," said Howard.
Each company plans to delist on the JSE on Friday 17 November and the new company will register under the name Distillers on 20 November. When the new name of the company has been finalised, it will be announced and changed on the Exchange.
Earlier last week the South African Competition Commission, which is an independent investigative and prosecutorial body operating in conjunction with the Competition Tribunal, gave notice that it intended looking into business practices within the entire South African liquor trade, including South African Breweries, KWV, SFW and Distillers and Rembrandt.
This could take anything from a few months to two years, depending on what the investigators uncover.
Commission spokesperson, Karin Coode confirmed that the Commission had also been approached about the Distillers-SFW merger plans.
The commission can do nothing about it, because it does not constitute a merger in terms of the Competition Act, because there is essentially no change in control of the majority shareholders.
But Bulmer SA apparently did not agree and chose instead to take a more direct route than Seagram and served papers to the Competition Tribunal on Thursday 9 November 2000.
"South African Breweries also has a 30% stake in each company"
This was confirmed by Shan Ramburuth CEO of the Tribunal. He said there had also been representation by unions, which had marched on parliament protesting the merger.
The matter would now have to be investigated in full.
HP Bulmer has a 70% share in a joint venture, which they entered into last year with Bavaria Brau, a small Gauteng-based brewery. HP Bulmer invested £2.3m in the project, which included building a cider plant alongside Bavaria's facility at Centurian outside Pretoria.
Justice Thabani Jali heard Seagram's application for an interdict against the merger on Friday. Counsel for both parties argued the merits of the South African Competition Act and whether it applied to the merger.
Distillers and SFW gave notice of intent to merge in April this year and have been involved in negotiations since. They formalised the announcement in the media in mid-September and the actions against the merger have sprouted since then.
Distillers-SFW argued that because both companies had the same majority shareholders, namely the Rupert owned Rembrandt Group and KWV, through a holding company Rembrandt-KWV Investments and that such a merger was tantamount to a restructuring of the group. South African Breweries also has a 30% stake in each company.
"Evidence in the case is set to continue until Wednesday or Thursday and judgement handed down in mid-December"
Seagram countered that both companies were separate legal entities, which competed against each other for many years on the South African. As such they were not just restructuring, but merging and so forming a virtual monopoly in the South African wine and spirits market.
While presenting the Seagram case, Advocate Peter Hodes SC, said that when the names Rembrandt-KWV were heard, the word "monopoly rings in the air".
After listening to a day of legal skirmishing Justice Jarli, reserved judgement to weigh up the evidence.
Judge Jeanette Traverse, sat in hearing of the ongoing Martell Cognac case, where Seagram are claiming SFW failed to meet the agreement for the brand during the financial year between July 1997 and June 1998.
According to an agreement signed in 1990, it was stipulated that SFW, which produced, distributed and marketed Martell in South Africa, had to meet a minimum of 80% of the agreed sales targets for each year.
Seagram claimed that for the period in question the sales target was for 5,366 million litres, while SFW maintained the volume was 5,317 million litres.
The amount of brandy sold was within the figure claimed by SFW, but short of that stated by Seagram. Evidence in the case is set to continue until Wednesday or Thursday and judgement handed down in mid-December.
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Intrigue surrounds Distillers-SFW merger