Heineken deal shows Naspers how frothy Chinese market is
Heineken paid way over the odds for its stake in CR Beer, so Naspers better not get too cheeky with Tencent
Did any Naspers shareholders happen to look at the recently announced transaction between Dutch beer group Heineken and the owner of the largest-selling beer brand in the world, China Resources Beer (CR Beer)?
While the beer side of the transaction is interesting, of greater significance is the story it tells about the pricing of Chinese transactions.
In 2016, even before AB InBev finalised their purchase of 100% of SABMiller, plans were in place to sell SABMiller’s 49% stake in Snow Breweries back to CR Beer, which held the other 51% of the company.
China was one of SAB’s early foreign ventures. It set up a partnership with state-owned CR Beer in 1994 and did well to push the brand to the number one slot in the country.
While Snow was the largest-selling beer brand in China, it was never a very profitable venture for SABMiller because the selling price was so low. In some areas of the country Snow beer was cheaper than bottled water.
SABMiller said it was taking a long-term view on a market that could not be overlooked by any consumer goods company with global aspirations. The CR Beer connection was useful in pushing SABMiller’s premium brands across China, and over the years there were steady signs of margin improvement at Snow.
But in 2016, when the time came to sell the 49% stake, the $1.6bn offered by CR Beer raised eyebrows. That it fell far short of the $3bn-$5bn most analysts had expected has been confirmed by the $3.1bn Heineken has to pay to purchase just 40% of CR Beer two years later.
This is either remarkably good timing by CR Beer, or a case of capitalism with Chinese characteristics. Naspers shareholders should realise they interfere with the Tencent control structure at their peril.