Heineken and China Resources Beer announce strategic partnership

By Rachel Arthur

- Last updated on GMT

Heineken will take a $3.1bn stake in the parent of China Resources Beer, China’s largest brewer. The deal gives Heineken greater access to the Chinese market; while China Resources will be able to grow in the premium market and potentially expand its Snow brand internationally.

Heineken’s current operations in China – including three breweries - will be combined with CR Beer’s operations; while Heineken will license the Heineken brand in China to CR Beer on a long-term basis.

“The combination of Heineken and CR Beer in China is highly complementary,” ​said Heineken in a statement announcing the deal on Friday.

“CR Beer has a best-in-class route to market (RTM) network, a wide brewery footprint and a deep understanding of the Chinese market. Heineken has proven premium brand building capabilities and a world-class international brand portfolio, led by the iconic Heineken brand for which it has built strong equity over the years in China.” 

Heineken and CR Beer will also look into which other premium Heineken brands could be licensed to CR Beer in China.

Meanwhile, the deal could also signal an international expansion of CR Beer’s Snow brand – the largest beer brand in the world – thanks to Heineken’s distribution network.

China: a growing beer market

China is the world’s largest beer market by volume, at 45.5 billion liters, and China Resources’ brand Snow (雪花) is the largest beer brand worldwide (by volume).

China is the world’s second largest market by value ($84.7bn), coming in second after the US. In 2016-2017, the beer market grew in value by 6.6%: against a background of stagnant growth for the beer category globally.

Heineken predicts China will become the biggest contributor to premium volume growth in the beer category over the next five years, while profitability of the Chinese beer market is expected to improve significantly thanks to premiumization, international beer brands and cost optimisation.

China Resource Holdings is the top beer player in the market, with 26.1% of the market by volume, followed by Tsingtao Brewery and AB InBev.

While Heineken is the world’s second largest brewer, it only has a limited share of the beer market in the country, explains Euromonitor senior analyst Anna Ward.

“Partnering with China Resources provides Heineken access to a vastly improved distribution network through which to expand the footprint of its premium beers,”​ she said. “China Resources faces a similar challenge – and opportunity – from the strength of the premiumisation trend in China. Its sales are very much focused on lower-priced beers, placing it out of step with prevailing consumer trends. Gaining the licence to the Heineken brand will go quite some way towards improving its premium presence.

An increasing middle class means disposable incomes in China are growing faster than in most developed markets and, coupled with urbanisation, creates new opportunities for socialising and consuming higher-end beers.

“Younger consumers, in particular, are interested in trying new beer styles,” ​said Ward. “Wheat beer and stout have recorded very strong growth over the past five years, albeit from a low base. While growth has now become more restrained, it remains in double digits.” 

The deal

  • Heineken will become China Resources Enterprise’s 40% minority partner in holding company CRH (Beer) Limited (‘CBL’), which controls CR Beer, the market leader in the world's largest beer market, China.
  • Heineken will acquire a shareholding of 40% in CBL and CRE will own the other 60% in CBL. 
  • The partnership covers Mainland China, Hong Kong and Macau.
  • Heineken will have an effective 20.67% economic interest in CR Beer and will get representation on the board of CBL and nomination rights to the board of CR Beer.
  • Heineken will invest a total amount of HK$24.3bn ($3.1bn) in CBL, which translates into an implied purchase price of HK$36.31 ($4.6) per share in CR Beer.
  • CRE will acquire 5.2 million Heineken N.V. shares (equivalent to a 0.9% shareholding in Heineken N.V.) which are currently held in treasury for a total consideration of €464 million ($537m) or €88.66 ($102.5) per share.
  • Heineken will contribute its operating entities in China, including three breweries, into CR Beer for a total consideration of HK$2.4bn, through a share sale transaction.
  • Combined, these transactions will result in a net investment of €1,948 million ($2.3bn) by HEINEKEN.  
  • Heineken and CR Beer will enter into a Trademark License Agreement for the Heineken brand in China. Heineken and CR Beer will also sign a Framework Agreement to allow CR Beer to leverage Heineken’s global distribution channels to support and accelerate the international growth of CR Beer's Snow brand and its other Chinese brands, as well as to govern the use of other premium brands owned by Heineken which may be licensed to CR Beer in China.

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