Chris Mercer

Comment - Heineken happy to sell CND stake to Anheuser-Busch InBev

By Chris Mercer | 16 April 2012

Anheuser-Busch InBev has squeezed Heineken out of the Dominican Republic via its deal to gain control of the country's largest brewer, Ceverceria Nacional Dominicana (CND).

A-B InBev said today (16 April) that its AmBev subsidiary will form a tie-up with CND's majority owner, Grupo León Jimenes, that will see the two companies merge their beer operations in the country. Although AmBev will initially buy a 41.76% interest in CND, at a cost of around US$1bn, this is set to creep above the all-important 50% mark after the brewer concurrently announced that it will buy Heineken's 9.3% stake in CND for US$237m.

It's a move that enhances A-B InBev's sphere of influence across the Americas region, via a leading position in the Dominican Republic and via CND's Presidente brand, which is exported to the US. It also shows that the world's largest brewer was keener to consolidate its position in the Americas than risk another foray into Central & Eastern Europe with StarBev.

AmBev already has its own unit in the Dominican Republic, but buying into CND's dominance of the local beer sector - the company has 88% market share to AmBev's 11% - was the only realistic way of gaining a market-leading position. There were rumours that both Heineken and SABMiller were sniffing around CND: This is unsurprising, given both brewers' strong interest in the Americas region and, in particular, Heineken's existing partnership with Grupo León Jimenes.

That AmBev has managed to steal CND from under Heineken's nose, then, is something of a double win, securing a controlling stake in the Dominican Republic brewer at the same time as forcing Heineken out of the back door. Here is another Americas market in which Heineken will be second-best to a brewer either in the clutches of, or with strong ties to, A-B InBev. Mexico and Brazil head that list.

Heineken, for its part, is playing down the significant of the CND deal. The Netherlands-based brewer said today that its stake sale “monetises its minority investment at an attractive valuation”.

The message is that Heineken is happy to cut-and-run, gaining firepower for use in more strategically important markets. That's understandable, particularly in the context of AmBev's valuation of CND at the high end of the average for brewing industry deals. A blockbuster bid from Heineken, which subsequently will have zero presence in the DOminican Republic, might have seemed inappropriate, given the Netherlands-based brewer's need to invest elsewhere in the Americas, and in Africa.

If Heineken manages to reinvigorate its FEMSA Cerveza business in Mexico this year, as well as make more gains in Brazil, the CND exit will be little more than a footnote in its annual report for 2012. However, the deal highlights that Heineken is very much playing in what A-B InBev considers its own backyard. What's more, the borders of that backyard are increasing.

Sectors: Beer & cider, Mergers & acquisitions

Companies: Heineken, InBev, SABMiller, FEMSA

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