Heineken says SAB wants to down it

The merger of the world’s largest and second-largest brewers – Anheuser-Busch InBev (AB InBev) and SABMiller – would exclude a major potential source of competition in the local beer market.

Unless the R1.6 trillion-merger is dealt with correctly, it could destroy what little competition  exists in the local market, legal representatives for rival brewer Heineken told the Competition Tribunal on Wednesday.

Heineken holds a 9% to 10% market share in the local beer market, while SABMiller holds 85% to 90%. AB InBev holds 0.1%, the tribunal heard.

The Competition Commission earlier recommended that the tribunal approve the merger with a series of very specific conditions aimed at mitigating any anti-competitive effects of the merger and advancing certain public interest objectives.

Heineken rejected the argument of the merging parties that the merger won’t affect the structure of the current market, since AB InBev has hardly any presence in South Africa. The merging parties have complimentary geographical footprints and aim to form a truly global company by joining forces.

SABMiller would be selling four brands. Those brands however have only a 1.5% market share with limited production and volumes in South Africa. It will be sold to a Japanese company with no presence in South Africa. This step wouldn’t serve as a competitive constraint, Heineken argued.

The brewer told the tribunal the merger has to be assessed in the context of SABMiller’s super dominance, the high barriers to entry in the market for beer production and distribution and SABMiller’s record of “dirty tricks”.

The harsh reality is that Heineken is the only real competitor to SABMiller, it argued.

If the merger were approved, the merged entity would gain 200 brands in the local market, while disposing of only four. Its portfolio would therefore be largely enhanced, Heineken said.

After the transaction these additional brands would have to be accommodated in the already-limited fridge, shelf, marketing and ambient space in retail and other outlets. The question is, at whose expense? Heineken asked. SABMiller already has exclusive agreements with owners of outlets for space and the concern is what would happen to competitors if the new brands were being marketed aggressively.

The brewer said the tribunal should get clarity on the merged entity’s intention with its combined brand portfolio and whether it intends to conclude agreements with outlet owners to reserve fridge space and if so, what percentage would be reserved.

Heineken said the tribunal should take into account the merged entity’s massive financial strength and the fact that rivals won’t be able to match its ability to secure finance.  Supreme financial strength could further lead to predation, Heineken argued. It said there is a risk that the merged entity would abuse its dominance through bundling of products in its combined portfolio.

Heineken alleged that SABMiller over time engaged in dirty tricks such as removing rivals’ marketing material and incentivising outlet owners for charging more than the recommended prices on competitors’ products, while maintaining their own prices.

It proposed specific conditions to prevent this kind of conduct, including a condition that the merged entity would refrain from incentivising outlets to allocate more than 70% of its space to the merged entity.

Heineken said the proposed condition, which would see 10% of fridge space reserved for Distell’s ciders and a further 10% for microbrewers, would have no effect on competition. Microbrewers don’t pose any competition to SAB and Distell already has a 50% market share in ciders. These conditions are irrational and do not include Heineken, which would be the merged entity’s only real competition in the beer market, the brewer’s legal team argued.

Heineken asked for the merged entity’s compliance plan to be published on its website for the public and its rivals to see.

The legal representatives of the merging parties earlier accused Heineken of being opportunistic and trying to achieve goals that have nothing to do with the merger.

Distell also made presentations. It emerged that the parties agreed that the merged entity’s divestment of its stake in Distell would be effected over a shorter period than the Competition Commission proposed. No details were made public in this regard.

The hearing will continue until the end of the week, with minister of economic development Ebrahim Patel expected to make a presentation on Friday.

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