UB set to brew and market Heineken

UB set to brew and market Heineken

Bangalore: Vijay Mallya’s United Breweries Ltd (UBL) and Heineken NV, the world’s third largest brewer, unveiled an agreement on Monday under which UBL will brew and sell the Dutch company’s brands in India, marking the end of a prolonged dispute.

In a complicated series of transactions, Heineken will buy APB India Ltd from Asia Pacific Breweries Ltd, its joint venture with Singapore-based Fraser and Neave Ltd, and transfer it in 2010 to UBL, in which it has a 37.5% stake. That will remove the sticky point of Heineken being present in India through two entities.

Under the agreement, UBL will brew and market the beer brands Heineken and Cannon 10000 in India, and Heineken will make and sell the Indian company’s largest selling beer brand, Kingfisher, in overseas markets.

“Kingfisher and Heineken will be a potent combination," said Mallya, chairman of the UB group, in a conference call from London.

Heineken took its stake in UBL when it and Carlsberg A/S jointly bought Scottish and Newcastle Plc for £7.8 billion (Rs59,826 crore now) in April 2008, but Mallya and the other UBL joint venture partners contested the move in legal proceedings.

UBL said on Monday that it will withdraw the legal cases against Heineken over shareholder rights.

“It will be good for UB to have an international brand like Heineken in its portfolio and Heineken will benefit greatly through UB’s distribution network," said an analyst from an international brokerage who didn’t want to be named citing his company policy.

UBL shares closed on Monday 4.73% higher at Rs191.50 on the Bombay Stock Exchange.

Mallya hopes to sell Heineken in India by the summer of 2010.

He added that UBL would receive a standard brewing and licensing fee from Heineken, declining to disclose specifics.

The arrangement will have no bearing on the shareholding pattern of UBL.

Asia Pacific Breweries, a 78-year-old joint venture between Heineken and Fraser and Neave, is Heineken’s arm in the Asia-Pacific region.

APB India sells beer brands Tiger, Cannon 10000 and Heineken in India and has brewing facilities in Maharashtra and Andhra Pradesh with a capacity to brew 460,000 hectolitres a year.

UBL will also have the option to review whether it wishes to brew and sell the Tiger brand in India; this is yet to be finalized as Asia Pacific Breweries owns the brand.

The two breweries will be integrated into UBL in 2010 and Asia Pacific Breweries has agreed not to re-enter the Indian market.

UB, which sold at least 82 million cases of beer in the year to March, owns 15 breweries and has contract arrangements with seven more.

The arrangement has also given Heineken more say in running UBL.

Heineken nominee Guido de Boer has been appointed chief financial officer and executive director at UB and two more members from the Heineken top management, René Hooft Graafland and Siep Hiemstra, have become non-executive directors on the UB board. This is on a par with the rights enjoyed by the previous shareholder, Scottish and Newcastle.

Heineken, which has 125 breweries in more than 70 countries has a negligible presence in India, selling mostly through duty-free retail. But the company sees potential for growth in the Indian beer market, where annual per capita consumption is just around 1.3 litres, compared with more than 50 litres in developed markets.

“For us, India is the last frontier for beer growth. The market will grow for the next 10-20 years," said Jean-François van Boxmeer, chairman of the executive board and CEO of Heineken, in the conference call.

UBL, which has a 48% market share in the Indian beer market, has a small presence overseas with brewing facilities in the UK, US and New Zealand. “UB’s international revenues are small and growing. We seek to ramp it up significantly through exports and local brewing arrangements in Heineken’s facilities," said Mallya.

Reuters contributed to this story.

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