Heineken and China Resources Beer Reach $3.1 Billion Deal

Heineken NV will purchase a stake of $3.1 billion in the company that controls China Resources Beer, the largest brewer in China, as the two companies look to tap into the increasing thirst by beer drinkers for premium brands in the largest beer market in the world.

Heineken, which is the No. 2 brewer in the world, will take a stake of 40% in CRH Beer for $3.1 billion or HK$24.34 billion, giving it a widespread distribution network across China and far more access to one of the fastest growing sectors in the world for premium beers.

For CR Beer, which makes the popular Snow beer, this deal is a way in which to crack into the premium sector that has been dominated by foreigners during a time when the demand for brands at the lower end is waning with consumers across China wanting to drink higher-end brew such as craft beers.

The deal will help to accelerate the high-end strategy for Snow beer from CR Beer and achieve a goal it has to take a leading position within the next 5 to 10 years in the premium market, said CEO of CR Beer Hou Xiaohai.

Snow beer accounts for close to 90% of the total beer sales volumes of CR Beer, but it is almost exclusively sold domestically. The company is hoping to use the global distribution of Heineken to market Snow beer abroad.

Investors initially toasted this news, pushing the share price for CR Beer up over 10% on Friday. However, shares later dropped by 2.7% later in the day.

The dominant players in the premium lager sector in China are Anheuser-Busch InBev and Carlsberg.

With its deal involving CR Beer, Heineken is hoping to challenge AB InBev whose top brand in China Budweiser fare exceeds Heineken in China’s premium market, say analysts.

Heineken had a share of 0.5% of the market in China during 2016, while CR Beer held 25% of the market at that time. Under its deal with CRH Beer, the Dutch brewery will inject the three breweries it has in China into CR Beer and it will license its Heineken brand to CR Beer in China, Macau and Hong Kong.

China Resources Enterprise maintains the other 60% of CRH Beer and will purchase 5.2 million shares of Heineken for $537.5 million.

The transactions combined could result in a $2.2 billion net investment by Heineken, said the two companies through a joint prepared statement.

Heineken shares rose 2% on the news in early trading Friday.