DO RECENT restructuring events at plastics packaging specialist Bowler Metcalf – which have put some fizz back in the share price – have any bearing at  on liquor group KWV Holdings?

To précis developments at Bowler: the company has sold its Quality Beverages (QB) soft-drink bottling operation to slightly bigger rival Shoreline to form SoftBev.

Although SoftBev may sound like the nickname you gave your kindly old aunty, but with potential sales of over R1bn the new constellation will rank as the biggest SA-owned soft-drink bottler, with potential sales of over R1bn.

The merger hopefully sorts out a flat spot for Bowler. While QB enjoys highly profitable market share with its Jive and Planet brands in the Western Cape, the company’s push into Gauteng has had limited results  really battled for operation traction. Fortunately for QB, it seems Shoreline’s Coo-ee brand, which enjoys a profitable presence in KwaZulu Natal, is also battling for a viable foot hold in Gauteng.

QB is able to alleviate Shoreline’s logistical headache of hauling bottles from KZN to Gauteng by producing Coo-ee at its Johannesburg soft-drink filling facility. This has mutual benefits, – allowing QB’s production capacity to be utilised more effectively and saving Shoreline enormous distribution costs.

Bowler has shown considerable faith by opting for shares in the merged entity in lieu of a cash payment for QB.

But more critical, to my mind, is Bowler’s willingness to sacrifice some profit flows at its core plastics manufacturing core division in Epping. After the SoftBev deal is consummated Bowler will no will no longer supply blown bottles to QB but continue to provide the same quantity of bottle pre-forms instead. It will reduce the cost of production for QB in the Western Cape, but lose Bowler its bottle-blowing profits. So, reading between the lines, Bowler must believe that the upside from the SoftBev venture will, in the longer term, comfortably compensate fit or for bottle-production losses.

Bowler has shown considerable faith by opting for shares in the merged entity in lieu of a cash payment for QB.

But back to my original question about KWV.

Bowler’s QB “smerger” (sale-merger) reminds me a little of the plan PSG/Zeder initially had for KWV in 2010, when proposals were outlined for merging the liquor business into  with Pioneer Foods’ Ceres Beverages. Like the QB-/Shoreline merger, Ceres Beverages and KWV might have offered an enlarged beverages company with economies of scale as well as opportunities to extract production efficiencies.

While SoftBev chairman Mike Brain has discounted the chances of the merged soft-drinks bottler pursuing other opportunities, I have no doubt a Ceres Beverages coalition would have pursued new opportunities, especially on the alcoholic brand side. In retrospect, there might be a few observers who were initially opposed to the merger that but now, with the benefit of hindsight, wish the abandoned deal had gone ahead.

As it stands, more than three years after Hosken Consolidated Investments (HCI) bought control of KWV from PSG-/Zeder, the liquor company remains highly reliant on its brandy and wine brands. A push into ready-to-drinks has not yet yielded a profitable flavour, though shareholders and quaffers of KWV wines and brandies (and I am unashamedly one of them) will testify that new controlling shareholders have produced some magnificent brands in the past last few years. It seems reasonable to assume that this year, in spite of contentious currency-hedging policies, KWV should — thanks to the markedly weaker rand — produced fortified profits from its export wines.

But for the longer term there is growing unease amongst a number of shareholders that a slick deal-maker like HCI — via Niveus Investments — doesn’t seem to have the bottle to pull off acquisitions, partnerships or joint ventures that diversify the company away from the ‘grape’.

What HCI-/Niveus are doing, however, is mopping up more KWV shares, with the controlling stake now through the 57% level. Now that control by HCI-/Niveus is indisputable and KWV’s existing operations on a more sober footing, perhaps there might be a willingness to top up on  with new operational assets and brands.

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