SABMiller, Coke agree concessions with South Africa over bottling deal
AA – A comprehensive set of commitments have been agreed between the Coca-Cola Beverages Africa (CCBA) merger parties – SABMiller plc, The Coca-Cola Company and Gutsche Family Investments – and the South African Government, that will be recommended to the Competition Tribunal in connection with the proposed creation of Africa’s largest soft-drink beverage bottling operation.
The commitments address concerns regarding employment, access to retail cooler space for smaller competitors, localisation of production and inputs used in the production of Coca-Cola products and Appletiser brands, economic empowerment and the location of the headquarters.
The merger parties undertook to ensure that the merged entity maintains its total permanent employment at current levels for a period of three years from the date of approval of the deal; that employees in the bargaining unit will not be subjected to involuntary retrenchment as a result of the merger and that retrenchments of senior management staff be limited.
The company agreed to invest R800 million to support enterprise development for two groups of entrepreneurs:
- Creation of a R400 million fund for enterprise development in the agriculture value chain, particularly to support and train historically disadvantaged developing farmers and small suppliers of inputs to Appletiser and CCBSA products on a competitive and sustainable basis; and
- R400 million incremental investment to develop downstream distribution and retail capabilities with associated skills development and training. This is expected to create an additional 20,000 black-owned retailers.
These commitments will ensure that CCBA, which will be headquartered in South Africa, will support economic and social development in the country in a number of significant ways. The merger parties have made undertakings related to increasing empowerment in Coca-Cola Beverages South Africa (CCBSA), the South African-based subsidiary of CCBA, and supporting long term investment in South Africa.
Detailed commitments to localisation of their supply-chains have been accompanied with an agreement that the merger parties will convene an annual local Supplier Development Conference, produce an annual report on localisation and train managers on the advantages of localisation.
The merger parties agreed to a number of commitments which align closely with the South African government’s national imperatives, including by:
- Providing for small retail outlets (smaller than 20 m2) to be free to provide 10% of visible space in the Coca-Cola coolers to smaller competitor products where there are no other coolers available in the retail outlets
- Increasing the broad-based empowerment ownership of CCBSA to 20% and selling a 20% shareholding in Appletiser South Africa to appropriate black shareholders who will be expected to participate actively in the business;
- Maintaining and growing the Appletiser South African production operations to serve the domestic market and as a base from which to export Appletiser to the rest of the continent and elsewhere in the world.
Headquartering CCBA in South Africa will result in additional revenue for local and national governments; further cement the country’s standing as the investment and business ‘gateway to the rest of Africa’ and demonstrates a clear commitment by the merger parties to invest in South Africa for the long term.
Welcoming the agreement and the CCBA commitments, Ebrahim Patel, Minister of Economic Development noted that the agreement laid the basis for deeper industrialisation in the South African economy.
“Employment creation and development of small businesses are a vital part of building a more inclusive economy. The commitments made by the merger parties will open access to cooler space in smaller spaza shops and retail outlets to competing brands. Employment levels will be protected for three years. The R800 million commitment builds on a number of similar commitments made recently which, taken together, will be a major boost for small-holder farming,” he said.
Alan Clark, CEO, SABMiller noted: “I am very happy that we have reached this agreement and hope we now have a clear path to the conclusion of this transaction and the creation of Coca-Cola Beverages Africa. As the location of CCBA’s headquarters, South Africa will be the heart of this business and our belief is that our commitments will provide a strong footing from which the business will flourish in South Africa and across the continent.”
James Quincey, President and Chief Operating Officer of The Coca-Cola Company commented: “Today’s announcement ensures that the creation of Coca-Cola’s largest bottling partner in Africa will strengthen our business while also closely aligning with the South African government’s national imperatives for social and economic development. Coca-Cola has been firmly committed to our business in Africa and supporting local communities since we first began operations in South Africa almost 90 years ago, and this agreement marks the latest important step in that journey.”
Gutsche Family Investments (GFI) chairman Phil Gutsche said: “I am pleased that we have been able to reach agreement in such a constructive manner which has also enabled us to build relationships and mutual understanding, and I trust that final approval will follow shortly. I believe CCBA creates an opportunity for continued growth and demonstrates our confidence about doing business in South Africa and in Africa.”
A Competition Tribunal hearing on the proposed formation of Coca-Cola Beverages Africa as part of the regulatory approval process with the South African Competition Authorities is due to commence on May 9th 2016. The agreement between the merger parties and the South African government is expected to expedite the approval process.
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