At this point, it’s no longer a secret that Asia, specifically China, is the next-big-thing in the alcohol games. Needless to say, the big kids are all rushing to increase their presence in the exploding market. Heineken took a huge step in that direction today; the mega-brewer announced the purchase of a 40% stake in China Resources Beer (CRB), the nation’s largest brewer, for $3.1 billion.
“This (deal) will help accelerate CRB Snow beer high-end strategy and achieve its goal to take a leading position in the premium market within 5-10 years,” CR Beer’s CEO Hou Xiaohai explained to journalists during a subsequent conference call.
The remaining 60% of CRB will remain in the hands China Resources Enterprise. CRE also committed to the purchase of 5.2 million Heineken shares for €464 million ($538 million). According to a joint statement from the brewers, the end result will be net investment of $22b.
CRB’s flagship product is a lager called Snow. 90 different breweries produce 100 million hectoliters of Snow annually according to the corporation. Although, Snow is primarily sold in China, it accounts for 90% of CRB’s sales and by many estimates, hold the title of world’s bestselling beer.
Heineken previously held only 0.5% by volume of the Chinese beer market compared to CRB’s 25% according to Euromonitor International. “China is a continent and we are a small organization and to scale up for us is just unaffordable,” said Heineken Chief Executive Jean-François van Boxmeer during the press call.
Despite size issues, Heineken hopes to add premium brands, such as their Tiger and Sol, to CRB’s line. In recent years, Chinese drinkers have followed international trends and turned away from base level brews. Unfortunately, CRB previously lacked any premium or craft offerings.
Snow was actually co-created with SABMiller which held a 49% stake in the venture until 2016. Howeer, when AB InBev acquired Miller, they were forced to sell that asset on the cheap in order to gain regulatory approval for the deal.
The deal is not yet finalized. Due diligence and approval from Chinese regulators are still in the works. Heineken retained JP Morgan as an advisor on the transaction, and CRB teamed up with Nomura and UBS. The companies said that they expect the final details to be sorted by year’s end.