AB-InBev to acquire CND

Thanks to AmBev's deeper pockets, the Brazilian unit of AB-InBev managed to pull ahead of Heineken in the race for Cerveceria Nacional Dominicana (CND). On 16 April 2012 the deal was announced after weeks of the rumour mill spinning wildly out of control.

AmBev is paying about USD 1.0 billon for a 41.76 percent stake in the maker of Presidente beer from cigarette manufacturer E. Leon Jimenes, which itself owns 83.5 percent of CND, the largest brewer in the Dominican Republic.

What CND's other bedfellow, Heineken, thought of such an arrangement immediately became clear when Heineken announced that AmBev will also pay USD 237 million for the 9.3 percent stake in CND owned by Heineken.

This way Heineken is out of CND and AmBev in. For Heineken, exiting CND will have proved well worth it. The deal values CND at USD 2.5 billion – or 13 times EBITDA – which is very expensive.

AmBev has been operating in the Dominican Republic, a country of 9.6 million people, since 2004. International brewers have been lured to the Dominican Republic by the country's attractive beer profits. According to Heineken, EBIT per hl beer is slightly under USD 30.

Initially, AmBev must have thought the Dominican Republic a worthwhile investment when they acquired a 60 percent stake in the local Pepsi-Cola bottler in 2004. AmBev next built a brewery in Hato Nuevo, just west of Santo Domingo. It brews Budweiser and Stella Artois, plus AmBev's Latin American brands Brahma and Quilmes.

But although trying hard, AmBev's market share is still at only 13.6 percent, according to company figures. Which isn't good for profitability. Throwing their lot in with CND would certainly give AmBev greater clout in the market. The government of the Dominican Republic may frown upon AmBev becoming the monopoly brewer, but hey, it's the Caribbean and governments in the region can easily be won over by the sight of a dollar bill, paid as taxes, of course.

It was announced that AmBev and Leon Jimenes will form a partnership holding the Brazilian brewer's Dominican operation, known as AmBev Dominicana, as well as the majority of CND.

The combined revenue of those businesses was about USD 570 million last year, AB-InBev said, estimating that the first year of joint operations will generate an operating profit of USD 190 million.

Combining the businesses in the Dominican Republic should present opportunities to cut costs.

The Dominican Republic has long been viewed primarily as an exporter of sugar, coffee, and tobacco, but in recent years the economy has become highly dependent upon tourism, the single biggest revenue earner. Over 4 million people visited the Dominican Republic in 2010. Not bad for beer sales.