AUSTRIA: Heineken creates Euro giant with BBAG buy

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The Dutch brewing giant Heineken has won the race to acquire the Central European brewer BBAG, for a total consideration €1.9 billion.

The acquisition of BBAG will extend Heineken's leadership in Continental Europe and the combined business will be the clear market leader in Central Europe.

Chairman of the executive board of Heineken, Thony Ruys, said: "Together with BBAG we create the leading brewer in Central Europe. Both our operations and brand portfolios make a perfect match. Moreover, I believe the cultural fit between the management of our two companies is very powerful. The new Brau Union will combine the local heritage and know-how of our Austrian partner and their wealth of experience in the region and Heineken's expertise as the international brewer."

CEO of BBAG Karl Buche said the deal had accomplished a long-standing vision of the group.

"We will manage the combined business from the headquarters in Austria and will continue to serve our consumers with a broad portfolio of international, national and regional brands. Moreover, we will contribute to the combined business our extensive experience that we have gained through our early involvement in the development of the Central European markets," he said.

The deal is structured in a way that will see Heineken acquire up to 100%, but not less than 75%, of Getranke-Beteiligungs-AG (GeBAG), which itself holds 68.7 % of BBAG's share capital. GeBAG's shareholders will be offered a total consideration of €769m for 100% of GeBAG.

Once the transaction is completed, Heineken will launch a public offer for the outstanding shares of BBAG and its sub-holding Brau Union AG. . Heineken will make bids of €124 and €127.27 per share respectively.

After completion of the transaction, Heineken will merge all the operations of BBAG, Brau Union and Heineken in Central Europe into a newly formed company, to be named Brau Union AG.

The Dutch brewer will finance the buy through debt financing, but gave no details on how it exactly plans to do so. The company will take on €400m of BBAG debt, and said its annual interest costs will increase by €100m.

The acquisition will be earnings neutral in 2003 but it will boost the bottom line in 2004, Heineken said.

Based on transaction value and BBAG's reported EBITDA for 2002 of €186.6m, the EBITDA multiple for the entire transaction would be 10.2 times. Taking account of only the expected cost synergies in 2007, this multiple falls to 8.4 times.

As a result of synergies Heineken expects annual cost savings to reach €40m in 2007.

BBAG has breweries in five countries in Central Europe: Austria, Poland, the Czech Republic, Hungary and Romania. The deal will mean that in eight of the 13 countries in this region (namely; Austria, Poland, Hungary, Romania, Bulgaria, Slovakia, Macedonia and Albania) Heineken will have a number one position.

Heineken said this position could be further optimised and extended, with the addition of the Heineken brand and its international beer portfolio. In addition, Heineken will have a number two position in Croatia, a strong regional foothold in the Czech Republic and a valuable export position in the remaining other three countries of the region (Serbia- Montenegro, Slovenia and Bosnia-Herzegovina).

"Many of the countries in the combined business are in the process of joining the European Union. Based on historic precedent, this process will solidify the economic robustness of those countries, accelerate the increase of consumers' purchasing power, stimulate beer consumption growth and lead to the further development of the premium branded beer segment. These factors are likely to lead to excellent opportunities for growth in these markets," it said in a statement.

BBAG saw its operating incomes rise 16.2% for 2002, to €79.5m (US$89.18m). (See seperate story).

Companies: Heineken

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