Distell’s shareholders give the green light to Heineken takeover

South Africa | Distell’s shareholders, on 15 February 2022, voted overwhelmingly in favour of the Heineken takeover. They are offered cash, or the option to keep shares in the unlisted companies that will result from the deal. They can also take part cash and part shares.

In November 2021, Heineken made a ZAR 38.5 billion (USD 2.6 billion) offer for Distell, which still requires competition authorities’ approval.

The aim is to combine Distell’s cider, RTDs, spirits and wines with Heineken’s interests in southern Africa, including Namibia, and select export markets in East Africa, to create “a world-class, unlisted, southern African focused, alcoholic beverages entity with a leading international beer and cider portfolio”.

Keeping Diageo at bay

The Heineken takeover has taken its first hurdle. But there is one small issue: Distell’s cash cow, the Gordon’s gin brand. Global drinks firm, Diageo, which internationally owns the brand, has been trying for years to reclaim the Gordon’s brand in South Africa. Apparently, the contract is very specific, so up until now Diageo has been unable to do so. Maybe the change in ownership will do the trick?

Anticipating this problem, Heineken and Distell have sought to find a way around this problem by excluding Gordon’s and Distell’s Scotch whisky brands from the deal. In the deal documents, there is talk about “Distell In-Scope Assets”, which will remain with Heineken/Distell, and a separate business unit consisting of the “Distell Out-of-Scope Assets”. Called Capevin, it will house the Scotch whisky business and Gordon’s Gin.

Will the split do the trick?

Capevin will be a sizeable business. Distell’s sales of Gordon’s came to ZAR 1.7 billion (USD 110 million) annually, with operating profit at ZAR 310 million (USD 21 million). The Scotch business is of the same order, reports say. This compares to Distell’s net operating profit of ZAR 2.8 billion (USD 190 million) in its last financial year (June 2021). Combined, these drinks represent a hefty chunk of Distell’s profits.

The website dailymaverick.co.za wondered: “Can you sell most of a business, carve out some of it, and claim that the bit you carved out is not being sold, despite a change of ownership of the group as a whole? Clearly, Distell thinks you can, but Diageo is busy briefing lawyers to challenge this scheme.”

Hefty fees for advisors

What shocked local commentators were the hefty fees for advisors. The commentator Ann Crotty scoffed that they are feeding at this particular corporate trough and will take home nearly ZAR 130 million (USD 9 million).