Heineken Acquires Kirin's Brazilian Beer Business for $1 Billion

Austin Ray

THE GIST
Heineken has agreed to acquire a dozen Brazilian breweries from the Japanese beverage company, Kirin Holdings, for a reported $1 billion. The deal serves to bolster Heineken’s presence in the South American nation, which the company pegs as the world’s third largest beer market, while giving Kirin the chance to unload a slew of loss-making breweries. Pending approval from Brazil’s antitrust regulatory body, the deal is expected to close in the first half of 2017, according to Reuters.

WHY IT MATTERS
This is the second deal Heineken has made in Brazil this decade, following the 2010 acquisition of Fomento Económico Mexicano’s (FEMSA) beer operations in the country. At the time, Heineken CEO Jean-François van Boxmeer said the move was transformative for its future in the Americas, and called Brazil “one of the world's most profitable and fastest growing beer markets.” But a lot has changed since then.

Beset by an historic recession, Brazil’s beer market has taken some bumps the last few years. Reuters reports Kirin’s Brazilian beer operations alone lost 284 million reais (or roughly $9.1 million) in 2016. In light of that, the $1 billion price tag Heineken ponied up for the business is nearly 75% lower than the $3.9 billion Kirin paid for it in 2011.

But it’s not just Kirin, of course. Anheuser-Busch InBev, the world’s largest brewer is feeling it, too. Ambev, which is controlled by the Belgian giant and is the largest beer maker in Brazil, saw sales dip to a seven-year low in the country in the third quarter of 2016, according to Bloomberg—even with the Rio Olympics in town at the time.

So, today, with the country poised to enter its third year of recession, Heineken has pivoted from its stance seven years ago. Now, it says, it’s confident for the future health of the Brazilian beer market, particularly on the premium side of things.

“Whilst the macroeconomic environment has been challenging over the last few years, the longer term fundamentals of the Brazilian beer market are highly attractive supported by a growing population and a positive GDP outlook,” the company said in a press release Monday. “In addition, the premium segment of the beer market, which has outperformed the broader beer market in recent years, has a relatively low share compared to many other markets, providing a compelling and attractive opportunity for future growth.”

The company specifically hopes the deal will help to “accelerate further [premiumization]” of its Heineken and Sol brands, while enabling “further growth of the well-established Schin, Bavaria, Kaiser, Amstel and Devassa brands in the mainstream and value segments.”

Industry watchers, though, have pointed to an interesting undercurrent to the deal. Per Reuters:

“Some analysts have also said the deal is important as it makes Heineken a stronger rival in a heartland of global beer leader A-B InBev just as the latter has pushed into Heineken's markets elsewhere through its takeover of SABMiller.”

In the past, it’s worth noting, the company has rejected the idea that it would change the way it does business based on the mega merger between AB InBev and SABMiller. In August of 2016, Laurence Debroux, finance director with Heineken, told the Financial Times, “We have a global brand but we’re selling market by market and we don’t see the merger changing that.”

With 12 new breweries in Brazil, Heineken is poised to operate 17 total in the country, and solidify its spot as the nation’s second largest brewery.

—Dave Eisenberg

READ MORE
Heineken takes battle to AB InBev in Brazil with $1 billion Kirin deal [Reuters]