News of a multibillion-rand acquisition staggered over two years did little to move Distell’s share price on Monday. The announcement about the first phase of a potential R8.6bn acquisition was released at the close of trade on Friday. By Monday, the share had edged up to close at R144.47, far off its 12-month high of R172.61.

Through the proposed two-phase acquisition of Best Global Brands (BGB) — a mainstream spirits brand with operations in Angola, Kenya, Nigeria and Kenya — Distell will acquire an initial 26% for $54.6m from the families that own the business. Distell has agreed to acquire the remaining 74% no earlier than the end of 2019 if certain operating hurdles are achieved.

The cost of the first and second phase of the acquisition is capped at R8.6bn.

Distell management said the deal would be funded from internal cash resources.

"The transaction is expected to be accretive to Distell’s headline earnings per share from the first year," Distell said.

Chris Logan of Opportune Investment said the deal would bolster Distell in Angola, where BGB is the market leader in the mainstream spirits category.

BGB also has a strong and growing presence in Nigeria, Kenya and Zambia. Logan said the acquisition’s pricing was an attractive 9.3 multiple compared with Distell’s price-earnings rating of 19 times.

"BGB is a significant player but at just over 30-million litres is substantially smaller than Distell," Logan said.

BGB’s products are generally higher margin than Distell’s.

Although Distell will use cash for the deal, Logan said the proposed change to its control structure would give it scope to use shares as part payment.

The latest deal marks the third significant corporate move by a company long regarded as insular and slow moving. A pyramid control structure, a reluctance to make acquisitions and disappointing trading performances have undermined the share price in recent years.

With Monday’s closing price, the share was back at a level it first reached in December 2013. It moved to an a high of R180 in November 2015 due to expectations that Anheuser-Busch InBev’s acquisition of SABMiller would trigger an unwinding of the Distell control structure. SABMiller held an effective 26% of Distell through a control structure that involved Remgro and Capevin.

Investors had hoped Remgro would buy the 26% stake, giving it undisputed control over Distell and enabling it to use paper to fund an acquisition programme.

In December 2016, when the Public Investment Corporation (PIC) emerged as the buyer, the Distell share price plunged. It recovered earlier in 2017 when Remgro announced a PIC-backed restructuring plan that would unwind the pyramid structure and leave control firmly with Remgro.

Pressure to make acquisitions has grown in recent years due to increasing pressure on the local market.

Heineken’s Strongbow cider has made significant inroads against Savannah. As its recently released quarterly figures revealed, AB InBev has achieved a remarkable turnaround with Redds. In the three months to June, Redds recorded a 20% hike in volumes.


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