Heineken in talks to buy Kirin’s Brazilian unit
If the going gets tough – sell. This seems to be Kirin’s approach to its struggling business in Brazil. Since the middle of January media have been abuzz with rumours that Japan’s Kirin Holdings will dispose of its Brazilian beer operations to Heineken as soon as possible.
According to reports confirmed by Heineken on 20 January 2017, the two brewers have largely agreed to an arrangement under which Heineken will reportedly pay USD 870 million for Brazil Kirin – as the unit is called – which is less than a quarter what Kirin paid for it. Brazil Kirin, which operates 12 factories in Brazil, was created in 2011 after the USD 4 billion purchase of local brewer Schincariol.
Kirin is expected to take huge losses on the deal.
Brazil is the world’s third-largest beer market behind China and the US, but has seen beer volumes drop because of the country’s protracted economic woes. According to Bloomberg estimates, beer consumption in 2016 declined to 114 million hl, equal to the 2010 level, while at its peak in 2014 it stood at 140 million hl, says the Barth Report.
When Kirin bought Schincariol, the company ranked second behind AmBev, a unit of AB-InBev, and produced 19 million hl beer (2011). But due to volume and market share losses, Kirin’s beer sales reached only an estimated 10 million hl in 2016.
In 2016, AB-InBev still led the market with nearly a 70 percent share, now followed by local brewer Petropolis (13 percent), Heineken (9 percent) and Kirin (8 percent) – if estimates are to be believed.
In November 2016 Kirin sold a brewery in the state of Rio de Janeiro to AmBev for reportedly USD 149 million and took other restructuring steps, aiming to move back into the black on an operating basis in 2019.
At the same time, Brazil Kirin began talks with competitors Heineken, AmBev and Petropolis on potential partnerships, including a capital tie-up. Heineken eventually proposed to buy the unit outright, given that earnings seemed to be recovering.
This would imply that Kirin’s Brazilian unit is close to break even so Heineken presumably will only pay for the assets and synergies.
Even if a deal between Heineken and Kirin materializes, Heineken’s position will not be much improved. True, it might gain significant market share in northwest Brazil where Schincariol had its stronghold. Yet, a national market share of under 20 percent will not be enough to successfully compete with AmBev, as AmBev used to control over 90 percent of the country’s profit pool.
Japanese media say that Kirin has taken an unsparing look at unprofitable operations since Yoshinori Isozaki became President in March 2015. What they failed to mention is that Kirin’s CEO, who oversaw the acquisition, has since become its chairman.
Unsurprisingly, Japanese media refrained from giving readers the lowdown on Kirin’s Brazilian disaster. Reports would only lay the blame on both distance and poor communication with Tokyo. How ludicrous are these?
After exiting Brazil, Kirin will concentrate on Asia and Australia, where the Japanese company owns a number of popular local brands.
