Heineken NV, the world's third-largest brewer, agreed to buy 40 percent of Jiangsu DaFuHao Breweries in one of China's wealthiest provinces as the Dutch company seeks to increase its share in the world's largest beer market.
The Amsterdam-based brewing giants, maker of Amstel lager and Murphy's Irish Stout, will buy the stake in DaFuHao with Nantong Alcohol Industry Co Ltd through a venture it shares with Fraser & Neave Ltd, the Singaporean brewer of Tiger Beer, Heineken said yesterday in an e-mailed statement.
Heineken will pay almost half of the US$28.6 million purchase price.
Like European competitors such as Carlsberg A/S, InBev NV, and SABMiller Plc, Heineken is expanding in Russia and China in search of sales growth as demand for beer stagnates in Europe and the US. Beer consumption will rise an average 4.2 percent in China through 2009, according to Merrill Lynch & Co. The Chinese beer market is worth about US$6 billion.
"This acquisition is a logical step in Heineken's strategy to build up production capacity in China, where the popularity of beer is rising from a low level of per-capita consumption on the back of a rapidly growing economy," Peter De Neve, an analyst at Petercam in Brussels, wrote in a note to investors. De Neve has a "reduce" recommendation on Heineken's shares.
China's 1.3 billion people each drink an average of 18 liters of beer a year, compared with up to 80 liters per head in Europe. The potential growth in China led Anheuser-Busch Cos, the world's largest brewer, to buy Harbin Brewery Group Ltd last year, trumping an offer from London-based SABMiller.
The acquisition of DaFuHao, located in the Jiangsu city of Nantong on China's southeast coast, will give Heineken four breweries that make a total 3.5 million hectoliters of beer. DaFuHao makes and sells brews such as BBOSS, Tongzhou and Changjiang, and has a 12 percent market share in the Jiangsu Province.
DaFuHao also sells beer in neighboring Shanghai. Jiangsu and Shanghai, which have a combined population of about 73 million, drink an average 14.6 million hectoliters of beer a year, Heineken said.
"With a strong position in one of the key beer markets in China, DaFuHao is a further step in our long-term growth path in China," Heineken Chief Executive Thony Ruys said in the company's        statement.
Heineken already owns stakes in Guangdong Brewery Holdings Ltd and Kingway Brewery Holdings, and brews its namesake beer for the Chinese market through Heineken Asia Pacific Breweries China, the venture Heineken shares with Fraser & Neave.
Still, Heineken's presence in China is far smaller than that of its competitors.