Distell’s restructuring set to take even more time

The long, protracted rearrangement of Distell’s control structure looks set to be further drawn out as the Competition Commission says approval for the latest changes is conditional on the Public Investment Corporation (PIC) selling 20% of the 26.8% it acquired in 2016 to a black economic empowerment (BEE) investor.

Chris Logan of Opportune Investments hit out at the commission and described it as “overzealous” in its efforts to enforce conditions.

“As a shareholder in Distell I feel the commission is becoming a hindrance in that too much red tape is being attached to this Distell deal, which its far larger competitors AB InBev, Diageo, Heineken and Pernod are not faced with,” said Logan.

A sluggish share price performance over the past 12 months indicates the investment community continues to be frustrated with Distell’s stymied growth strategy.

In October 2017, Distell shareholders approved the final clean-up leg of the company’s cumbersome pyramid structure put in place in the 1970s by Remgro, KWV and SAB.

Over the years, Remgro and CapeVin emerged as controlling shareholders with their combined 52% stake, but seemed reluctant to pursue acquisitions while SAB remained a prominent shareholder.

In 2016, one of the conditions imposed by the Competition Commission on AB InBev’s acquisition of SAB was the disposal of the Distell stake. In early 2017, the competition authorities approved the PIC’s acquisition of SAB’s Distell stake on condition that it divest of 20% of the 26.8% to BEE parties.

The final leg of the eight-year process, which was voted on at the 2017 annual general meeting, saw Remgro become the dominant shareholder with 56% of the voting rights but just 31.4% of the economic interest.

On Wednesday, the commission said it recommended approval of this transaction with the proviso that a condition attached to an earlier transaction was implemented. It said it found the proposed transaction was unlikely to substantially prevent or lessen competition in the relevant market.

But it was concerned the transaction would negatively affect the previously imposed divestiture conditions and consequently the public interest.

Because the PIC had swopped its Distell shares for shares in New Distell and because its stake in New Distell was diluted, the divestiture to the BEE purchaser would be negatively affected, the commission said.

To remedy this concern it has recommended that approval is conditional on ensuring the planned divestiture is implemented. “Further, the conditions ensure that any prospective BEE purchaser/s will not be prejudiced by the dilution.”

This means the PIC will have to ensure that BEE investors receive 20% of its previous 26.8% stake in Distell.