In 2014 the controlling shareholder of Dutch beer giant Heineken told Fortune magazine she had been “very, very sorry” when another family-owned brewer – Anheuser-Busch – was sold to InBev six years earlier. In the same interview, Charlene de Carvalho-Heineken’s husband told the magazine that they would rebuff any takeover attempts and pass the business on to their children.
Four years ago de Carvalho-Heineken rejected a takeover offer by SABMiller but she was likely shocked again when AB InBev absorbed SABMiller in a giant $107 billion deal finalised in late 2016. That left Heineken as the world’s second biggest beer firm behind its newly-merged rival. And in a landscape that is changing constantly Freddy Heineken’s sole heir has now concluded she cannot keep control of everything.
That was confirmed earlier this month with the announcement that Heineken was ceding control of its brewing assets in China to local market leader China Resources Beer (CR Beer). The Hong Kong-listed brewer saw a 10% spike in its stock price after the somewhat complicated transaction was revealed.
The deal was not a total surprise. A Reuters report in March had indicated that the parties were talking about a tie-up and the Dutch firm seems to have driven a pretty hard bargain in the view of Barney Wu, an analyst with Guotai Junan Securities. He told the South China Morning Post that Heineken has negotiated a 40% stake in China Resources Beer – an entity that enjoys about 25% of Chinese beer sales versus Heineken’s 1%, according to Euromonitor’s research.
In exchange, Heineken traded control over the rights to its trademarks and breweries in mainland China, Hong Kong and Macau, and paid around $3 billion for the stake. The deal was framed as a partnership, with CR Beer buying a cross-shareholding of 0.9% in Heineken for just over $500 million too.
“In Heineken we have found the perfect partner to achieve our ambitions in China and – as an international partner – to support us in growing business outside China,” said Chen Lang, chairman of China Resources Enterprise.
But Guotai’s Wu thinks the deal is more about sales in China, given the limited interest in Chinese beers in foreign markets. As we reported in WiC346, the strongest growth in China’s beer market is for premium beers, mostly foreign produced or locally-made craft varieties. CR Beer’s best-selling brew Snow has the leading market share in the mass market segment but with the rise of the so-called premiumisation trend it has needed to find new brands for growth.
That’s where Heineken and its other brands like Sol, Amstel and Birra Morretti come in. Jean-Francois van Boxmeer, chairman of Heineken, explained: “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.”
Heineken has sold beer in China since 1983, but van Boxmeer says it didn’t “have the time” to replicate its most successful regional operation in Fujian across the nation as a whole.
Snow Beer – which costs about Rmb10 ($1.44) per litre – accounts for 90% of CR Beer’s sales, but Euromonitor forecasts that premium-priced beers (defined as costing over Rmb14 per litre) – will account for 44% of all sales by 2020 as middle- class consumers trade up. Heineken is now better positioned to profit from this trend – albeit as the junior party in a combination that looks akin to a joint venture (though China Resources will retain management control). Likely the Dutch brewer’s executives realised it had a choice of rapidly scaling up in China or exiting – as Asahi did last October (see WiC385).
The biggest foreign player in the Chinese market is still Belgium’s AB InBev, with around 20% of sales. And ironically Heineken’s part-ownership of Snow Beer comes courtesy of that firm’s earlier merger with SABMiller. China’s antitrust body told the Leuven-based brewer that approval of that deal was conditional on the disposal of SABMiller’s 49% stake in Snow. Two years ago CR Beer spent $1.6 billion to buy this holding and take full ownership of the country’s most popular beer brand. SABMiller spent years turning Snow into a success; now Heineken will reap the dividends.
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