SAB’S ACQUISITION OF SMIRNOFF, GUINNESS BRANDS APPROVED WITH CONDITIONS
The Tribunal has conditionally approved a transaction through which South African Breweries (Pty) Ltd (SAB) intends to conclude licensing agreements with Diageo South Africa (Pty) Ltd (Diageo SA) in terms of which SAB will be appointed as the exclusive licensee for the manufacture, distribution, marketing and sale of the Smirnoff and Guinness branded products in South Africa (and other territories) in exchange for royalty fees. Conditions
Diageo SA will also transfer approximately 11 000 of its Smirnoff branded coolers to SAB at fair market value. The term of the licensing agreement has been claimed as confidential by the merging parties.
The Tribunal has approved the transaction subject to the following conditions, among others:
Background – The Licencing Agreements
- The companies must adhere to “information barriers provisions” for the duration of the licensing agreements. These regulate the flow of information between the parties in order to avoid inappropriate exchanges of competitively sensitive information;
- A condition relating to cider brands in a prior AB InBev and SAB Miller merger has been carried through and made a condition in the current transaction. This means that SAB must continue to provide a proportion of its refrigerator/cooler space to competitors;
- In relation to flavoured alcoholic beverages, SAB must also provide a proportion of its refrigerator/cooler space to competitors;
- For the duration of the licencing agreements, SAB may not induce customers to buy any of the Smirnoff or Guinness brands on condition that they also purchase clear beer ABI brands, or vice versa. However, SAB will still be able to have specific promotions in which the licensed brands and SAB brands can be sold and promoted as a combined offering for a limited duration;
- SAB will start local draught production of the Guinness Brands if a specific feasibility threshold is reached within a specified time frame in relation to the Guinness licensing agreement; and
- SAB must inform all its customers and all outlets solely supplied by it, of the conditions as well as publishing the conditions on its website for the duration of the agreements.
In terms of the licencing agreements, the following will apply in relation to the Guinness brands:
- SAB will begin local production of Guinness draught and will continue to import 440 ml cans until local sales volumes reach a level at which local production becomes viable;
- SAB will be required to market the Guinness brands and to reach minimum volume targets in relation to the number of outlets serving Guinness from draught taps and outlets serving Guinness 440 ml cans;
- SAB will be required to spend a certain percentage of net sales value on promoting the Guinness Brands; and
- Guinness Foreign Extra Stout and Guinness Malt variations are currently imported and do not form part of the licensing agreements. However, SAB is granted an option to import these brands for the duration of the agreements.
In relation to the Smirnoff brands, the following will apply:
- SAB will be required to meet specific growth targets for Smirnoff brands in line with the growth of other comparable flavoured alcoholic beverages;
- SAB will be required to advertise and promote the Smirnoff Brands and spend a specified portion of net sales value in doing so;
- Diageo will retain creative oversight and ensure consistency in respect of Smirnoff brand innovations with its global and South African spirit brands.
A non-confidential and complete copy of the conditions will be made available on the Tribunal’s website in due course at: www.comptrib.co.za
Gillian de Gouveia
Tel: +27 (0) 12 394 1383
Cell: +27 (0) 82 410 1195
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