Is Heineken preparing for an exit?
In a brief news item, the UK's Sunday Times reported on 3 February 2013 that Heineken is rumoured to be looking to sell its Finnish subsidiary Hartwall for EUR 590 million (USD 790 million). Heineken acquired Hartwall as part of the Scottish & Newcastle transaction in 2008, which it conducted jointly with Carlsberg.
Although only a rumour, Heineken responded quickly. On 4 February 2013 Heineken announced that they have merely started a "strategic review". During this review, Heineken will evaluate strategic options for Hartwall to drive continued growth for the business, within or outside of the Heineken group. The strategic review is expected to be finalised before the end of the year.
Market observers concur that Heineken cannot have been too keen on acquiring Hartwall in the first place. But the company fell into their lap as Carlsberg could not take on Hartwall themselves. At the time of the S&N takeover, Carlsberg already owned the Finnish Sinebrychoff beverage business – since 1999 – and obviously feared competition concerns.
Hartwall is a full beverage supplier with strong market positions in beer, carbonated soft-drinks, waters, long-drinks, ciders, wines and spirits. The company has around 850 employees. But in beer, it only has a 30 percent volume share and is second to Sinebrychoff with 34 percent (2011). Finnish-owned Olvi is third with a 22 percent volume share in 2011.
Being number two in beer is not really bad if the market environment is positive. However, Hartwall's confirming plans to cut 8 percent of its workforce last month point to a different picture. Finland's total beer volumes fell 2 percent in 2011, a continuation of the sales pattern seen since 2007, according to Euromonitor.
The whole Finnish beverage alcohol market is actually quite tough. Sinebrychoff is the market leader in most of the drinks categories with strong beer brands Karhu and Koff. Olvi is playing the "only national brewery" card and has also entered the private label business, thus raising volumes significantly.
Since the purchase, Heineken has seen volumes of Hartwall's beer brands, namely Karjala and Lapin Kulta decline, market observers say, with no turnaround in the offing.
What has made matters worse is that cheaper cross border beer imports from Estonia have taken quite a share of the Finnish market. Beer is an extraordinary product between Helsinki and Tallinn as the two cities are only 80 km apart across the Gulf of Finland and ferries run frequently. Alcohol tax has been traditionally high in Finland and low in Estonia. That is why Finnish consumers have imported (typically Finnish) beer (brewed in Finland) from Estonia to Finland. According to TNS Gallup’s survey, Finnish travellers imported 24.5 million litres of beer in 2011, which if compared to Finnish beer production of 4.2 million hl, is quite sizeable.
To top off the worry list, there is continuing discussion in Finland about tightening alcohol policies with more restrictions to come.
When considering Heineken's reasons for selling Hartwall, most indicators point to the hard times Heineken may have had making their initial investment pay off. Nevertheless, we should not forget that Heineken may also want to pay down debt from their purchase of Asia Pacific Breweries and have taken their lead from AB-InBev. In 2008, AB-InBev sold their central European unit to private equity company CVC following their purchase of Anheuser-Busch in the United States.
Still, exiting a European market like Finland would be a first for Heineken. There has been lots of speculation on the web as to who could buy Hartwall. A private equity outfit seems most likely. Given Hartwall's troubled outlook, private equity buyers may not exactly be queuing outside Heineken's door. But then, we may be wrong.
