China Resources Beer rumoured to buy Heineken’s local business
China Resources Beer is negotiating with Heineken to acquire its China business, which could be worth more than USD one billion, media report. As CR Beer seeks new growth from high-end brands, observers are not surprised by this potential deal. However, many believe the valuation will be the key factor and the synergy effect is still under observation.
According to historical M&A deals in China in past two years, the average transaction prices were nearly 15 times EBITDA. Based on transaction estimates of USD one billion for Heineken’s assets in China, some analysts think the price is fairly high.
The deal between CR Beer and Heineken would most likely include three breweries – in Guangdong, Hainan and Zhejiang provinces – Heineken’s distribution operation and its brands in China.
Heineken, which entered China in 1983, has struggled to set up a strong distribution network and to gain scale with its flagship Heineken lager, which lags far behind AB-InBev’s Budweiser in the premium end of the market, industry analysts say.
The Dutch brewer had a 0.5 percent share of China’s beer market by volume in 2016, according to research firm Euromonitor, while CR Beer accounted for more than a quarter.
Heineken sells its premium lagers Heineken, Tiger and Sol in China, along with cheaper local brands Anchor and Hainan Beer. Heineken’s eponymous brand sells for three times the price of Snow in China. Chinese beer drinkers are overwhelmingly consumers of low-margin inexpensive beer, which makes up 80 percent of the market by volume.
Beer sales in China have been declining since 2013 and are forecasted to continue to fall, according to Euromonitor. Sales of higher-margin premium beers, however, have been growing at a double-digit rate each year during the same period.
Analysts think that Heineken is unlikely to sell the business outright, as it would involve handing over the Heineken brand in China. Therefore, a joint venture between CR Beer and Heineken is considered more likely.
China is the world’s largest beer market by volume. CR Beer is the country’s major brewer and sells Snow, which is the world’s top-selling beer, but it is almost exclusively sold in China.
CR Beer’s interest in Heineken’s China unit follows its takeover in 2016 of SABMiller’s 49 percent stake in its CR Snow venture for USD 1.6 billion.
In 2017, Japan’s Asahi Group Holdings sold its 19.9 percent stake in Tsingtao Brewery Co – CR Beer’s biggest domestic rival – for USD 937 million as it decided to focus on Europe and elsewhere in Asia.
