Heineken has said the merger could take "several months"

Heineken has said the merger could take "several months"

We'd almost packed up for the week on Friday when Heineken announced plans to merge the two Nigerian breweries in which it has majority stakes.

Nigerian Breweries, the larger of the two, and Consolidated Breweries will be combined, subject to regulatory approvals. Heineken's stake in the merged company will be around 54%. But, what's behind the move?

Analysts at UBS suggest it is an indication of the increasingly competitive nature of the country's beer market. SABMiller and Diageo are both jostling for position in Nigeria. SABMiller in particular signalled its intent earlier this year by revealing plans to spend US$110m on tripling capacity at its Onitsha facility in the country.

Heineken remains the dominant force, however, with around 69% of the market. But, the economy end of the beer country's sector is seeing most growth. "Affordability of mainstream beer is still low," UBS says.

“Flexibility is needed in a more competitive market.” UBS expects Heineken to combine the two firms' salesforces and launch new products. “Gaining scale will create a more dynamic and agile structure,” the note says.

Heineken is likely to keep Nigeria Breweries' eight sites open, as well as Consolidated Breweries' three facilites, UBS predicts. Synergies, the analysts suggest, will come from combining the companies two head offices, which are both in Lagos, and merging back-office operations. 

A realistic target for cost synergies could be around EUR100m by year two of the new entity, UBS says.

But, it warns: “If competition intensifies further, part of these synergies will likely be reinvested in marketing to protect market share.”

Heineken is remaining predictably tight-lipped on the situation. A spokesperson told just-drinks that the move is still at the “pre-merger” stage, with shareholders of both groups still needing to approve the deal, as well as regulators. It warned last week that regulatory approvals could take “several months”. Perhaps this is due to instability in the country off the back of current high-profile terrorist activities.

On the prospect of redundancies, the spokesperson added: “In months to come, we will further develop the specific plans for such a merger, including the impact on the business footprint and employment.”

Clearly, Heineken is not in a rush on this one, suggesting its market dominance in Nigeria is not about to disappear anytime soon.