Heineken N.V has agreed to sell its China business to China Resources Beer Holding Company Limited (CRH Beer Ltd) in exchange for a 40% stake in the company. CRH Beer is the parent company of CR Beer, China’s largest beer company and maker of popular Snow beer in China.
The $3.1bn investment will give Heineken a strong local partner in a market where it has struggled to break into ever since entering the market in 1983.
The deal will see the Dutch brewer transfer its operations (three breweries) to CR Beer and license its Heineken brand in China, Hong Kong and Macau to the Chinese brewer for $305.8m, while CR Beer will acquire 0.9% stake in Heineken (5.2 million shares) for €464m ($537.5m).
Combined, these transactions will result in a net investment of €1.9bn ($2.2bn) by Heineken, the firms said in a joint statement.
Heineken hopes to scale up its business and grow its premium Heineken brand in a market where it has struggled for years and only holds 5% market share to CR Beer’s 25% and AB InBev’s 16%.
For CR Beer, a large state-owned conglomerate, it stands to begin to play in the premium beer market where it has had no presence. While the Chinese beer market is dominated by low cost beer, where CR Beer is the dominant player, premium beer brands in the likes of AB InBev’s Budweiser and Carlsbad have been driving growth and are expected to expand by 21% to $106 billion in just four years.
“long-term goal is to gain a dominant position in China’s high-end beer market . . . We plan to catch up with our competitors in the next five to 10 years,” says CR Beer CEO, Hou Xiaohai.
CR Beer’s Hou said that its company would use its extensive local distribution network to promote Heineken’s brands and was mulling bringing other Heineken owned brands not yet in China, though that discussion is still ongoing.
CR Beer also hopes to introduce its Snow beer, a brand that is so far only sold in China to the rest of the world through Heineken’s network.
Reuters reported in March that China Resources was in discussions to acquire Heineken’s China business.