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Heineken in Talks to Buy Japanese Group Kirin's Brazilian Beers

01/24/2017 - 12h28

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THE FINANCIAL TIMES

Heineken is in talks with Kirin to acquire the Japanese brewer's beer business in Brazil, a move that would challenge the dominance of Anheuser-Busch InBev in its biggest market.

The Dutch brewer confirmed yesterday that it was in discussions with Kirin Holdings "regarding a potential transaction in respect of Brasil Kirin Holding".

Heineken is Europe's biggest brewer by volume but has become a distant number two globally to AB InBev, following the Belgian brewer's £79bn takeover of SABMiller last year.

An acquisition of Kirin's lossmaking beer business would increase Heineken's share of the Brazil market from 7 per cent to 17 per cent - in line with its strategy of being the biggest or second-biggest in any country, and would generate cost synergies, said analysts.

That would allow it to become a credible challenger to AB InBev which has 67 per cent of the market in the native country of Jorge Paulo Lemann, the architect of the group's growth strategy.

A deal would also make Heineken big enough to develop its own distribution system and reduce its reliance on Coca-Cola's bottler network in Brazil.

"It is clear that Heineken feels that its best response to AB InBev's dominance in global brewing is to develop positions where it can disrupt AB InBev's core business," said Andrew Holland, analyst at Société Générale. "We have seen tit-for-tat expansion by the major brewers into each other's big markets in recent years."

He said the merits of a deal would depend on the price.

Market reports of an $870m price tag "would be lower than we would have anticipated", said Edward Mundy, analyst at Jefferies, adding that the potential acquisition would initially dilute Heineken's earnings but "longer-term would offer significant upside".

Kirin entered the Brazil market in 2011 with the acquisition of family-owned Schincariol for R$6.2bn as it sought to expand outside its home market.

Brazil is the world's third-biggest beer market but the industry has been hit as the country's economy has weakened.

Kirin's Brazil beer volumes have fallen 25 per cent since 2012 in the face of aggressive competition. The unit reported an operating loss of €151m in 2015, though that narrowed in the first nine months of last year.

Kirin held talks with Heineken last year over the potential sale of two of its 12 breweries in Brazil but now appears to have decided to exit the country altogether.

AB InBev cut its revenue forecasts in October after its beer volumes in Brazil fell by 4 per cent in its third quarter but Heineken reported good growth, thanks to the resilience of the premium beer market, which is its main business in the country.

Both sides emphasised that talks had not reached a conclusion.

Kirin Holdings said it was "examining every option, including a discussion with Heineken", while the Dutch brewer said there was no certainty an agreement could be reached.

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