Picture: REUTERS
Picture: REUTERS

The Competition Commission has given the conditional go-ahead for SAB, the local subsidiary of AB InBev, the largest beer group in the world, to acquire the SA rights to Smirnoff’s ready-to-drink (RTD) brands from Diageo.

Diageo, the world’s largest producer of spirits, is behind brands such as Johnnie Walker, J&B, Captain Morgan and Smirnoff. It also owns Guinness stout.

The deal, which has to be approved by the Competition Tribunal, will see SAB manufacture, market, distribute and sell Smirnoff Storm, Guarana, Spin Cooler, Pine Twist and Berry Twist. The deal does not include Smirnoff vodka. SAB is already a major producer of flavoured alcohol brands (FABs), which are similar to RTDs, under the Brutal Fruit and Redds brands.

The commission gave its approval, although it noted the deal raises a number of competition concerns. “The FABs market is a highly concentrated one in SA with Distell being the outright dominant player, and the proposed merger will likely create further concentration in this market,” said the commission in a statement released on Thursday afternoon.

It said the merger will substantially alter the structure of the FABs market as it is essentially a combination of the second (SAB) and the third (Diageo) largest players in the FABs market.

Despite its concerns, the commission said it found that, on the whole, the proposed transaction is unlikely to distort competition or have any notable effect on the prices of Diageo and SAB’s FABs because of competition from other brands. The commission also said the merger offers tangible and significant efficiencies that are likely to benefit consumers “including the increase in volume of the Smirnoff RTD products and the implementation of a returnable bottle policy”.

The conditions imposed include SAB committing to not engaging in any bundling or tying strategies of its FABs and beer products. The merging parties are also required to make a commitment that competing FABs will have access to the 11,000 Diageo fridges acquired by SAB.

One competition analyst, who spoke on condition of anonymity, said it was likely that Distell would challenge the commission’s approval when it came before the tribunal for confirmation.

Business Day was unable to get comment from Distell.