Heineken to explore new categories, considers takeover of South Africa’s Distell Group

SOUTH AFRICA – Heineken NV, the world’s second-largest brewer seeks to enter new alcohol market categories of wine and spirits, as it eyes ownership of Distell, South Africa’s leading producer and maker of wines, ciders, spirit and ready-to-drink beverages.

Distell, the owner of brands including Amarula, Savanna, Hunter’s Dry, Durbanville Hills and Nederburg, has revealed that it has been received interest from Heineken regarding the potential acquisition of the majority of its business.

“The parties have entered into discussions which, if successfully concluded, may have an effect on the price of the company’s securities. Bearing in mind that there can be no certainty that an agreement will be reached, shareholders are advised to exercise caution when dealing in their Distell securities until a further announcement is made,” it said.

According to reports by Reuters, the announcement of the potential deal saw Distell’s share, which had a market capitalisation of 31.8 billion rand (US$2.27 billion) at Monday’s close, shore up by more than 10% in early trade.

“Heineken… confirms that it is currently engaged with Distell regarding a potential transaction. Discussions are ongoing, but note that there can be no certainty that an agreement will be reached,” Heineken reiterated.

Heineken and Distell, the world’s largest and second-largest cider makers respectively, have gone head-to-head for the cider market in South Africa since Heineken launched its Strongbow brand there in 2016.

“Heineken… confirms that it is currently engaged with Distell regarding a potential transaction. Discussions are ongoing, but note that there can be no certainty that an agreement will be reached.”

Heineken

Heineken’s approach represents an opportunistic

Bloomberg has highlighted that the acquisition would be Heineken’s most significant transaction since 2018, when it formed a partnership with China Resources Beer Holdings Co., maker of the country’s best-selling beer.

Heineken is emerging from one of the beer sector’s toughest crises. Despite gains in Vietnam and Mexico, the brewer is still facing setbacks in key markets such as Brazil and the UK where restrictions on movement and sales have hurt demand.

Earlier this year, the company laid off 8 000 employees but in the first quarter it attained stable sales as emerging markets made up for declines in Europe.

South Africa was one of Heineken’s best-performing markets, which is surprising given the country’s recurring ban on alcohol.

The Distell purchase would add to US$7.4 billion of deals announced in the global beverage industry this year, about 15% less than at this point in 2020, according to data compiled by Bloomberg.

Further to that, the deal would mark the first acquisition for Dolf van den Brink, who took charge at the Dutch brewer last June and has launched a plan to restore profit margins.

It will also accelerate the decades-long strategy of his predecessor Jean-Francois van Boxmeer. During his tenure, van Boxmeer sought to tap growth opportunities in Africa, investing hundreds of millions of euros in promising markets such as Cote d’Ivoire, Nigeria and South Africa.

Distell stamps region presence

Distell on the other hand has in recent years been ramping up its business across the continent as part of a drive to become Africa’s next drinks champion.

The company reported 3.8% rise in half year revenue for the period ended December 2020 alongside volume expansion of 0.8% compared to the previous year.

This is attributed to the remarkable performance by its businesses outside of South Africa which helped ease some of the pain from the outright ban and other restrictions on alcohol in its main market.

In the rest of Africa, excluding Botswana, Lesotho, Namibia and Eswatini (BLNE), the group recorded an impressive performance with increased revenues and volumes of about 20% compared to the prior period.

This was largely driven by Kenya attaining a 17% growth in revenue and 9.8% volume growth), Mozambique’s revenue was up 33.3% with a volume growth of 15% and Nigeria’s earning inched-up by 22.9% Revenue while volume was up by 20.3%.

Meanwhile, the Africa business, including BLNE countries, also performed well with a revenue increase of 12.7% supported by 11.7% growth in volumes, driven by a recovery in trading following the easing of border closures and no further bans on alcohol sales.

The strong growth momentum was witnessed at Distell’s international business registering 15.4% revenue growth and significant margin improvement.