14 April 2023

Money men talk up a deal between Heineken and Boston Beer

USA | The analysts must be desperate for a big beer deal. Or why would Bernstein, an investment firm, out of the blue, discuss the potential benefits of a tie-up between brewers Heineken and Boston Beer?

Boston Beer’s shares rose more than 2 percent, after Bernstein analysts said on 22 March that they could see a potentially attractive logic to Heineken acquiring the company.

The timing could be right for Heineken. Although Boston Beer is one of the oldest US craft breweries, the stock market-listed firm has struggled recently, due to its overoptimistic reliance on future growth for its Truly hard seltzer. The brand’s performance has not lived up to expectations, which has seen Boston Beer’s share price tumble - from USD 1,200 in 2020 to USD 320 on 6 April 2023 - dragging Boston Beer’s market capitalisation down to about USD 4 billion, from formerly USD 12 billion.

Investors are asking for it

“One of the most common investor questions we get is... what could the next big beer deal be?” wrote Bernstein analysts, who said that in their view, “one such deal could be the acquisition of Boston Beer by Heineken, with an attractive strategic rationale for both parties.”

However, they “don’t see a deal as imminent.”

The analysts acknowledged that “Heineken has underperformed in the US for more than five years,” with the weakness being “nearly universal across the portfolio.”

“Heineken have commented that they have a brand problem in the US, not a scale problem, pointing out the spectacular success of Craft and FMBs,” said the analysts. “Whilst we agree with their diagnosis, we do see a potentially attractive logic to buying Boston Beer. It would be a modest bolt-on for the group but transformative for its US business.”

The rationale: a win-win for all

The analysts believe a deal would bring significant synergies in logistics, sales, elimination of the overhead of a quoted company, media purchasing, and transfer of best practices.

Besides, Bernstein believes that Boston Beer “could generate solid if not spectacular returns for Heineken.”

A few days later, analysts from Evercore took a similar line. Analyst Robert Ottenstein and team assume that Heineken will eventually expand its presence in the US through an acquisition and become a leading player in the alcohol market.

In terms of timing, they say that Heineken does not have a burning need to do something in the near future. It could just sit and watch before pulling off a deal.

In their view, the rationale for Heineken to make a move in the US is tied to the region being the start for many consumer trends and innovations. They also noted that geographic diversification is a way to protect long-term cash flows. In addition, the relative stability of the US and the dollar are thought to be attractive to the Heineken family.

Mr Ottenstein was quoted as saying that it would be a strategic mistake to think of the US business as just a beer business. “Lines are blurring, RTD drinks are changing the industry, and the landscape may look very different in 5-10 years.”

At this stage, it is just analysts talking off the top of their heads. But if more money men bandy around the idea, the pressure could rise on Boston Beer and Heineken to make it happen.

Heineken set to launch Heineken Silver in the US

The deal chatter comes at a time when Heineken is preparing the launch of its Heineken Silver beer in the United States.

“At 4% alcohol by volume, Heineken Silver is brewed specifically for the American palate with a more accessible flavour profile and 3.2 g of carbs and 95 calories in a 12-oz serving,” the brewer said.

Heineken Silver originally debuted in Asian markets, including China and Vietnam in 2019, before it was rolled out in the UK and Europe last year.

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