Heineken NV said it’s in talks with Kirin Holdings Co. over the Japanese brewer’s unprofitable Brazilian business in a possible deal that would create a stronger No. 2 behind dominant market leader Anheuser Busch-InBev NV.
Kirin is nearing an agreement to sell the maker of Schin beer to the Dutch company for about $870 million, the Nikkei newspaper reported Friday, a price that would be less than a quarter of the $3.9 billion it paid for the business in 2011. Tokyo-based Kirin confirmed the discussions, though declined to comment on the Nikkei report.
Heineken is seeking to capitalize on an expected rebound in the world’s third-largest beer market, which has endured a tough few years due to a consumer slump and rising inflation. Combining Kirin’s 12 percent share with Heineken’s 7 percent would bring the Dutch company closer to AB InBev, which controls almost two-thirds of the market, according to Jefferies analysts.
“We believe that there would be significant synergies from combining Heineken and Kirin’s business,” Jefferies analyst Edward Mundy said in a note. “Heineken ownership in Brazil would lead to a more rational pricing environment.”
Kirin has engaged in heavy discounting in the South American country, where it expects to post a record 9.5 billion-yen loss for 2016.
Heineken shares rose 0.2 percent to 70.78 euros at 10:26 a.m. in Amsterdam. Kirin rose 1.3 percent in Tokyo Friday, compared with a 0.4 percent gain for the benchmark Topix Index.
Heineken’s expansion efforts come as it seeks to keep pace with industry consolidation following AB InBev’s $100 billion takeover of SABMiller. Last month, the Dutch brewer teamed up with Patron Capital to buy U.K. pub operator Punch Taverns Plc. It’s also one of seven companies that has registered to bid for a stake in Saigon Beer Alcohol Beverage Corp., or Sabeco, Vietnam’s largest brewer.
A deal in Brazil could provide a boost for AB InBev as it would reduce competitive price pressure and wouldn’t be enough to turn Heineken into a strong competitor, Itau BBA analyst Antonio Barreto said in a note.
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For Kirin, such a sale could free up cash for plant and equipment in Myanmar, where the company has profitable operations, or to buy a stake in Sabeco, said Satsuki Kawasaki, an analyst at Macquarie Capital in Tokyo.
“The fact that they may be getting rid of the Brazilian business is a sign they’re going to focus on growing businesses,” said Kawasaki. “The market should take that positively.”