Heineken seals $3.1 billion tie-up with China Resources Beer, shares surge

Heineken NV has struck a $3.1 billion partnership with a company that controls China's largest brewer, China Resources Beer Co Ltd, as the two firms seek to tap a growing thirst for premium brands in the world's biggest beer market.

The deal will see Heineken, the world's No. 2 brewer, take a 40 percent stake in CRH Beer for HK$24.35 billion ($3.1 billion), giving the Dutch brewer a strong distribution network in China and greater access to one of the world's fastest-growing premium beer sectors.

China Resources Enterprise, which owns CR Beer, will also buy 0.9 percent of Heineken shares for 464 million euros ($537.5 million). The combined transactions would result in a net investment of 1.9 billion euros ($2.2 billion) by Heineken, the two firms said in a joint statement.

"We believe we can win together in this new era of the Chinese beer market, in which the premium segment will become increasingly important," said Chen Lang, chairman of China Resources Enterprise.

"In Heineken we have found the perfect partner to achieve our ambitions in China and - as an international partner - to support us in growing our business outside China."

The companies are conducting due diligence and will need anti-trust approval from China, according to a person with direct knowledge. The transaction is expected to complete by year-end, the person said.

JP Morgan is advising Heineken, while China Resources has enlisted Nomura and UBS as advisors. The banks did not immediately comment.

FROTHY GAINS

Investors toasted the news, pushing shares of China Resources Beer up more than 10 percent to HK$39.15 in a flat broader market.

"It is a win-win deal for both companies. CR Beer can, through the partnership, gain a great premium beer portfolio in the short run while the deal can accelerate the Chinese brewer to go overseas with its Snow brand in the longer run," said Linus Yip, chief strategist at First Shanghai Securities.

He expects the deal will also help China Resources Beer expand its market share and give it a lead over Chinese rivals such as Tsingtao Brewery.

The agreement comes as global beer giants such as Heineken, AB InBev and Carlsberg face fierce competition in emerging markets, touted as the growth engine for the world's biggest brewers.

Reuters reported exclusively in March that China Resources Beer was in talks to acquire Heineken's China business as it looks to expand its footprint in the premium beer market.

Heineken sells its premium lagers Heineken, Tiger and Sol in China, along with cheaper local brands Anchor and Hainan Beer.

Beer consumption in China has declined since 2013 due to changing consumer tastes for alternatives like wine, but the premium beer category has grown by double digits annually since at least 2012, according to Euromonitor data.

Growing demand for high-end beers from cosmopolitan Chinese consumers, who increasingly want more tailored and individual products, could help global brewing giants unlock higher profits in the world's largest beer market.

As part of the deal, Heineken's existing China operations will be combined with those of CR Beer - maker of the best-selling Snow beer brand - and the Dutch brewer will license its Heineken brand in China, Hong Kong and Macau to CR Beer.

Heineken entered China in 1983 but has struggled to set up a strong distribution network and to make a mark with its flagship Heineken lager, which lags far behind AB InBev's Budweiser in the premium market, analysts say.

CR Beer's deal with Heineken follows its takeover in 2016 of SABMiller's 49 percent stake in its CR Snow venture for $1.6 billion. That acquisition helped the Chinese brewer turn around its business.