FDBusiness.com

Heineken has joined forces with China Resources Enterprise (CRE) and acquired a 40% stake in China Resources Beer (CR Beer) to create a long-term strategic partnership for Mainland China, Hong Kong and Macau.CRE will own the other 60% of CR Beer, which is the undisputed market leader in China.

As part of the strategic partnership, Heineken China’s current operations will be combined with CR Beer’s operations and the Heineken brand in China will be licensed to CR Beer on a long-term basis. Heineken is making a net investment of €1.948 billion (at current exchange rates) in the venture.

China’s beer market, the world’s largest beer market by volume, is now the second largest premium beer market globally and is forecast to be the biggest contributor to premium volume growth in the next five years, driven by its rapidly growing middle class. Profitability of the Chinese beer market is expected to improve significantly, driven by premiumisation, demand for international beer brands and cost optimisation.

Under the strategic partnership agreement, Heineken will be CRE’s exclusive partner for international premium lager beers in China. Heineken and CR Beer will investigate which other premium brands from Heinken’s portfolio can be licensed to CR Beer in China. Heineken and CRE will also investigate if the Dutch brewer’s global presence and marketing capabilities can be leveraged to support and accelerate the international growth of CR Beer’s Snow® brand and its other Chinese brands to become the Chinese beers of choice.

Jean-François van Boxmeer, chairman and chief executive of Heineken, says: “We believe that our strong Heineken® brand and marketing capabilities, combined with CR Beer’s deep understanding of the local market, its scale and best-in-class distribution network will create a winning combination in the growing premium beer segment in China. We look forward to working together with CRE’s leadership in our newly formed Strategic Advisory Council, and supporting CR Beer in its ambition to internationalise.”

Upon completion of the deal Heineken’s pro-forma net debt/EBITDA (beia) ratio is expected to slightly exceed the target of 2.5x. However, Heineken remains committed to return to the long-term target of below 2.5x. The transaction will be immediately accretive to margins and accretive to EPS in the near term.