Heineken – beware the hangover

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Heineken chief executive Jean-François van Boxmeer might have been tempted to reach for something a little stronger than beer over the past few weeks. The company’s cosy status quo in Asia, where it owns a 47 per cent stake in Asia Pacific Breweries, has been torn apart. The battle for the rest of APB was getting messy and expensive. So it is hardly surprising that Heineken’s share price rose 6 per cent on Wednesday after it reached an agreement that should allow it to buy out the rest of APB.

The deal was never cheap, and got more expensive as the battle progressed. Heineken’s offer values APB at a hefty 17 times earnings before interest, tax, depreciation and amortisation. In exchange for paying up, it takes full control of APB’s S$800m of annual operating profits, a handy addition to the €2.6bn that Heineken is expected to make this year. More important, APB cements Heineken’s position in attractive Asian markets such as Vietnam and Malaysia. APB’s 14 per cent revenue growth puts Heineken’s 5 per cent growth rate to shame, while its 24 per cent operating margin is well ahead of Heineken’s 15 per cent, partly because of APB’s premium brands.

But good dealmaking is about more than just adding two profit streams together, and where Heineken will drive additional benefits is less clear. There may be some cost savings from importing best practice, although given its longstanding links with APB there may not be much more on that front. Heineken will also hope to cross-sell the companies’ brands, but so-called revenue synergies are notoriously difficult to deliver.

Heineken’s willingness to pay up for revenue growth will not have gone unnoticed elsewhere. While Mr van Boxmeer might be celebrating today, both he and his rivals are likely to feel the hangover when it comes to negotiating the next deal.

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