Published On:Tuesday, May 11, 2010

By ALLISON LOWE

Tribune Staff Reporter

THE Government has given brewing giant Heineken 18 months to "consolidate" Commonwealth Brewery and Burns House into one company prior to a 25 per cent initial public offering (IPO), Prime Minister Hubert Ingraham said yesterday.

Confirming what has been widely reported, namely that Heineken has to offer shares in the combined group to Bahamian retail and institutional investors in return for government approval for purchasing the stake held by a holding vehicle for Sir Garet 'Tiger' Finlayson and his family, Mr Ingraham said that such an arrangement would broaden Bahamian ownership of key economic assets.

"Government has agreed Kalik and Commonwealth have to make shares 25 per cent available to the public of the Bahamas as we seek to broaden ownership," the Prime Minister said of the deal exclusively revealed by Tribune Business earlier this year.

"Commonwealth will first of all have to consolidate the two companies into one, and I think they have up to 18 months to do so, so they will choose the timing."

While that statement may dampen hopes in the Bahamian investor and brokerage community that an IPO - possibly worth up to $25 million - was imminent, Mr Ingraham's statement also raises some further questions in relation to Heineken's $100 million purchase of the stakes held in Commonwealth Brewery and Burns House by the Associated Bahamian Distillers and Brewers (ABDAB), the Finlayson family vehicle.

ABDAB currently owns 47 per cent of Commonwealth Brewery, giving Heineken the majority 53 per cent equity stake. However, the position is reversed at Burns House, where ABDAB holds a 78.8 per cent stake.

While the deal seems good for Bahamian investors, given that Commonwealth Brewery - the most valuable asset - is included, and they will have equity ownership in a vertically integrated brewer, distributor and retailer (liquor being a commodity for which there is inelastic demand), questions will be raised on competition grounds.

Dionisio D'Aguilar, the former Bahamas Chamber of Commerce president, said earlier this year that the Heineken buy-out of the Finlaysons and ABDAB created an opportunity to break-up the monopoly/duopoly environment in the liquor industry - something the Government might not be taking.

Mr D'Aguilar said that during his two-year stint as Chamber president, which ended in 2009, he was contacted by numerous Bahamian independent liquor store owners complaining that they were unable to compete against the Burns House-owned stores.

"I used to get complaints from small, independent liquor retailers that because Burns House controlled such a big share of the market, they were at an inherent disadvantage, and Burns House was essentially a monopoly on the retail side," Mr D'Aguilar recalled.

"I remember a number of liquor store owners calling the Chamber and complaining about what was a monopoly environment. Because they [Burns House] had so much market share, it was very, very difficult for smaller liquor stores to compete.

"Firstly, they couldn't get product, and secondly the product they did was priced at a level that was not as good as the prices given to the Burns House stores."

To eliminate monopoly/competition concerns after completing the Butler & Sands acquisition in 2000, Burns House franchised out many of the retail stores to independent, Bahamian entrepreneurs who would source most of their products from its wholesale operation.

However, the move did not work, and many of the independent stores were subsequently taken back under Burns House ownership. Tribune Business also received calls from the Burns House store franchisees, complaining that the company's wholly-owned stores were obtaining better prices and discounts than they were, leaving them unable to compete.

Such concerns are likely to arise again, given that the merged Burns House/Commonwealth Brewery owns a significant number of liquor retail outlets.

Heineken already has Board and management control at Burns House, which became the largest liquor distributor and wholesaler in the Bahamas via the 2000 purchase of Butler & Sands. The Board and management arrangement, concluded in 2004, provided the Finlayson family with the financing needed to complete the Solomon's Mines purchase.

Apart from the Finlaysons, ABDAB's third largest shareholder is understood to be PLP chairman Bradley Roberts. Its second largest shareholder is Sir David Gibbons, owner of the Colonial Group, which owns the Bahamas-based Atlantic Medical and Security & General insurance companies.