Playing to the gallery

SA Breweries said their black staff and retailers would be issued with new shares worth about USD 750 million, funded through dividends over ten years.

Companies in South Africa have to meet quotas on black ownership, employment and procurement as part of a government drive to shift more of the mostly white-controlled economy into the hands of the black majority.

The black investors will inject a small amount of cash and the rest will be funded via dividends over ten years. External bank funding will not be required.

While the deal dilutes existing shareholders, it brings SA Breweries in line with government requirements on black ownership.

The brewer said the economic cost of the deal will be about USD 220 million based on option valuation methodology and will not hurt earnings in the current financial year.

At the end of ten years, participants will be able to swap their dividend-paying SA Breweries’ holdings for shares in SABMiller.

Observers have commented that the deal has a minimal cash impact on the group. It is some 3 percent dilutive to earnings. Nevertheless a significant socio-political risk has been removed at minimal economic cost.

It was reported that the deal boosts SA Breweries’ overall black ownership quota to 16 percent. How this was worked out, many would love to know. Because does this figure include the African Americans who have shares in Altria (formerly Philip Morris), which in turn has shares in SABMiller, which in turn own SA Breweries?

Let’s hope that by issuing that figure SABMiller did not open a Pandora’s Box.