Heineken N.V said on Monday it has agreed to acquire the loss making business of Japanese brewer Kirin Holdings Limited Brazil unit for $706m. Including debt, the Dutch brewer said it would pay €1.025bn for the transaction.
Kirin said it was exiting the Brazilian beer market citing a “stagnant and competitive” market.
“Considering various risks associated with (the) Brazilian economy and (the) stagnant and competitive situation in (the) Brazilian beer and soft drink markets, Kirin has come to the conclusion that there are certain limitations in transforming Brasil Kirin into a sustainable and high-profitable business on its own,” it said in a statement.
Kirin took control of family-owned Brazilian brewer Schincariol in 2011 at a cost of $3.9bn, in what it had hoped at the time was an opportunity to expand beyond its Japanese home market. But the acquisition has been nothing but a burden on the company as the Brazilian economy entered a sharp downturn.
The company said that its Brazilian unit reported an operating loss of $163m in 2015, and $284m in 2016.
For Heineken, the transaction will elevate it to the second position in Brazil’s beer market with nearly 20% market share, behind AmBev, the local unit of Anheuser-Busch InBev, which controls 65% of the market. Brazil is the world’s third largest beer market and AB InBev’s biggest.
The Dutch brewer which has five breweries in Brazil along with a strategic distribution partnership with the region’s Coca-Cola bottlers stands to inherit 12 additional breweries from the deal along with its own distribution network. The transaction is expected to close in the first half of 2017.
Heineken noted that the longer-term fundamentals for the Brazilian beer market were attractive because of its expanding population despite the current difficult economic conditions.
“This transaction marks a step-change in scale in an exciting beer market, building on our success to date in the premium segment and strengthening our platform for future growth,” said Jean-François van Boxmeer, Heineken chief executive.