Heineken has struck a $3.1 billion partnership having a company which controls China’s largest brewer, China Resources Beer, as the two firms seek to tap a growing thirst for premium brands from the earth’s biggest beer market.
The deal will see Heineken, the earth’s No. 2 brewer, take a 40 percent stake in CR Beer for HK$24.35 billion ($3.1 billion), giving the Dutch brewer a strong distribution network in China along with greater access to one of the earth’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 likely 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 which fresh 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 along with — as an international partner — to support us in growing our business outside China.”
The companies are conducting due diligence along with will need anti-trust approval by China, according to a person with direct knowledge. The transaction is usually anticipated to complete by year-end, the person said.
JP Morgan is usually advising Heineken, while China Resources has enlisted Nomura along with UBS as advisors. The banks did not immediately comment.
Investors toasted the news, pushing shares of China Resources Beer up more than 10 percent to HK$39.15 in a flat broader market.
“which is usually a win-win deal for both companies. CR Beer can, through the partnership, gain a great premium beer portfolio from the short run while the deal can accelerate the Chinese brewer to go overseas with its Snow brand from 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 along with give which a lead over Chinese rivals such as Tsingtao Brewery.
The agreement comes as global beer giants such as Heineken, AB InBev along with Carlsberg face fierce competition in emerging markets, touted as the growth engine for the earth’s biggest brewers.
Reuters reported exclusively in March which China Resources Beer was in talks to acquire Heineken’s China business as which looks to expand its footprint from the premium beer market.
Heineken sells its premium lagers Heineken, Tiger along with Sol in China, along with cheaper local brands Anchor along with Hainan Beer.
Beer consumption in China has declined since 2013 due to changing consumer tastes for alternatives like wine, however the premium beer category has grown by double digits annually since at least 2012, according to Euromonitor data.
Growing demand for high-end beers by cosmopolitan Chinese consumers, who increasingly want more tailored along with individual products, could help global brewing giants unlock higher profits from the earth’s largest beer market.
As part of the deal, Heineken’s existing China operations will be combine with those of CR Beer — maker of the best-selling Snow beer brand — along with the Dutch brewer will license its Heineken brand in China, Hong Kong along with Macau to CR Beer.
Heineken entered China in 1983 however has struggled to set up a strong distribution network along with to make a mark with its flagship Heineken lager, which lags far behind AB InBev’s Budweiser from 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. which acquisition helped the Chinese brewer turn around its business.