Heineken eyes China’s premium beer market, signs US$3.1 billion deal with country’s biggest brewer

PUBLISHED : Friday, 03 August, 2018, 10:22am
UPDATED : Friday, 03 August, 2018, 10:58pm

Dutch brewing giant Heineken NV announced on Friday it would give China Resources Beer, the country’s biggest brewer, exclusive rights to use its Heineken brand in mainland China, Hong Kong and Macau, in a deal worth US$3.1 billion. The region represents the world’s largest market for beer.

Under the agreement, Heineken will take a 40 per cent stake in CRH Beer, China Resources Beer’s parent company, for HK$24.35 billion (US$3.1 billion). China Resources Enterprise, which owns CRH Beer, will concurrently acquire 5.2 million shares – a 0.9 per cent shareholding – in Heineken for 463.63 million (US$537 million).

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China Resources Beer is the maker of Snow Beer, which commands about 20 per cent of China’s domestic urban market, according to international consumer consultancy Kantar Worldpanel, and is the country’s most popular brand.

The deal comes at a time when high-end brands have emerged as the main drivers in the Chinese beer market. Premiumisation is an important strategy for China Resources Beer.

“With Heineken’s long heritage and world-class iconic brand portfolio, along with our leading presence and deep understanding of China, we believe we can win together in this new era of the Chinese beer market, in which the premium segment will become increasingly important,” Chen Lang, the chairman of China Resources Enterprise, said in a joint statement.

We believe that our strong brand and marketing capabilities, combined with China Resources Beer’s deep understanding of the local market … will create a winning combination in the growing premium beer segment in China
Jean-François van Boxmeer, chairman, Heineken

“In Heineken we have found the perfect partner to achieve our ambitions in China and – as an international partner – to support us in growing our business outside China.”

Jean-François van Boxmeer, the chairman of Heineken, said: “We believe that our strong brand and marketing capabilities, combined with China Resources Beer’s deep understanding of the local market, its scale and best-in-class distribution network, will create a winning combination in the growing premium beer segment in China.”

The deal combines all of Heineken’s China business with China Resources Beer, and the Chinese brewer will have access to other international brands owned by Heineken in China. China Resources Beer’s management also said the company will aim to get a larger market share in the high-end beer category in the next five to 10 years.

JP Morgan advised Heineken on the deal, while UBS and Nomura advised China Resources Beer.

Investors and industry observers cheered the news, with shares in China Resources Beer surging by 7 per cent in morning trade in Hong Kong on Friday, but China has proven to be a tough market for international players.

In December 2017, Japan’s Asahi Group Holdings sold its entire 19.9 per cent stake in Tsingtao Brewery, China’s second-largest brewer, for 106 billion yen (US$937 million) to Chinese conglomerate Fosun International. Asahi said at the time it was drawing back from China to focus more on Europe and other Asian markets.

“While it’s a reasonable move for Heineken to have a tie-up with China Resources Beer, as the Dutch brewer has less than 1 per cent market share in China’s high-end beer segment and could thus use the Chinese company’s comprehensive sales channels, it’s a bit surprising that the management of China Resources Beer would give it so much stake,” Barney Wu, an analyst with Guotai Junan Securities, said during a phone interview.

Wu said he would increase the price target for China Resources Beer slightly after the deal, but as the shares of the company were already trading at a price to earnings ratio of about 80, he would hold a “neutral” rating for the company.

“The focus of the deal is mainly the China market, as China Resources Beer will find it difficult to breach into mature European markets, where brands like Carlsberg already have a dominating position,” he said.