Secondary M&A moves by Heineken in the wake of S&N deal
- April 01, 2008
||company acquisition announced in April 2008
||Eichhof Getranke Holding AG (Switzerland), no.3 domestic beer producer
||Heineken NV (Holland), no.1 beer producer in Europe
||shareholders of Eichhof diversified group
||to strengthen its no.2 market position in Switzerland
||acceptable valuation, part of break âup of Eichhof Holding
||âdeal is earnings enhancing in 2009 and will be financed from existing debt facilitiesâ
With this acquisition, Heinekenâs Swiss market share increases from 13% to 23%. Itâs an obvious acquisition, to improve Heinekenâs net debt ratio in this troubled credit environment - it makes Heineken a strong no.2 player in a high value developed market, is earnings enhancing almost straight away and doesnât require any new debt. We also think it presages a few significant sales by the group in other geographies â predictions include the Czech Republic and India.
To finance its half of Scottish & Newcastle, Heineken is taking on over âŹ 5 bln in new debt. With that acquisition adding about âŹ 500 mln to the groupâs EBITDA, the key ratio of net debt to EBITDA has increased significantly for the group, with no capital increase planned. So, with Heinekenâs headroom restricted, this deal with Eichhof is arguably their last purchase for some time. At the other end, financial prudence dictates selective divestments to improve Heinekenâs net debt ratio still further.
In last monthâs Glenboden, we identified the Czech Republic as a market in which Heineken, in spite of its perseverance and hard-fought acquisitions, is still only the no.3 player with 12% share. That could put it on the divestment list for the group, now, with a number of serious potential buyers.
In India, Heineken has acquired 37,5% of United Breweries, the market leader with 45% share and the flagship Kingfisher brand. This stake arises from S&Nâs earlier strategic alliance with Vijay Mallya, who has the same level of shareholding, with the remaining 15% in the hands of financial investors.
In fact, itâs a very similar structure, and possibly situation, to the one that S&N had with Carlsberg in Russia (vis-Ă -vis BBH, owner of Baltika brand). This time, however, we donât think thereâll be any takeover battle. Heineken will probably sell its stake to its local partner, to strengthen its balance sheet further, then look to attack the Indian market through its strategic stake in Singapore âbased Asia Pacific Breweries (Tiger brand).
Certainly the Indian beer market will see significant M&A activity and investment in the next few years.