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China Resources Beer in talks to acquire Heineken's China business - sources

Reuters  |  HONG KONG 

By Julie and Kane Wu

(Reuters) - Resources (Holdings) Co Ltd is in talks to acquire Heineken NV's business in a deal that could be worth more than $1 billion, as the country's largest brewer seeks new growth from premium brands, five people close to the discussions said.

The negotiations come as global giants such as Heineken, (ABI.BR) and (CARLb.CO) are facing fierce competition from local rivals and each other in emerging markets, which have been touted as the growth engine for the world's biggest brewers.

is the world's largest market by volume. CR Beer's biggest brand, Snow, is the world's top-selling beer, but is almost exclusively sold in China.

One of the sources said the deal between and Heineken would most likely include three breweries - in Guangdong, and provinces - Heineken's distribution operation and its brands in China.

The two brewers have discussed a share-swap as part of the transaction, the source said.

Details have not been finalised and talks could yet fall apart, the sources said. They declined to be identified as the information is not public.

did not immediately respond to requests for comment. Heineken declined to comment.

Heineken, which entered China in 1983, has struggled to set up a strong and to make a mark with its flagship Heineken lager, which lags far behind AB InBev's Budweiser in the premium market, industry analysts say.

The Dutch brewer had a 0.5 percent share of the China market by volume in 2016, according to research firm Euromonitor International, while accounted for more than a quarter.

Heineken sells its premium lagers Heineken, Tiger and Sol in China, along with cheaper local brands Anchor and Beer.

The company has invested millions of dollars in promoting Heineken as the global lager of choice, predominantly through sports, including soccer and Next month will mark its second time as prime sponsor of

Beer sales volume in China has been declining since 2013 and is forecast to continue to fall, according to Euromonitor. Sales of higher-margin premium beers, however, have been growing at a double-digit rate each year during the same period.

"CR Beer doesn't have super-premium lagers, while Heineken has high-end brands but lacks scale in China," said one source. "Heineken is a natural target for CR Beer."

Heineken's eponymous brand sells for three times the price of Snow in China. Chinese beer drinkers are overwhelmingly consumers of low-margin inexpensive beer, which makes up 80 percent of the market by volume, compared with an average of 18 percent in big developed markets, according to Nomura analysts.

Last year Japan's sold its 19.9 percent stake in - CR Beer's biggest domestic rival - for $937 million as it decided to focus on and elsewhere in

CR Beer's interest in Heineken's China unit follows its takeover in 2016 of SABMiller's 49 percent stake in its CR Snow venture for $1.6 billion.

That acquisition helped the Chinese brewer turn around its business. In 2016 it reported its first annual profit in three years after a renewed focus on the Snow brand and expanded sales in key Chinese cities.

Shares of CR Beer were trading at HK$30.85 on Thursday in giving the group a market capitalisation of about HK$100 billion ($12.76 billion). Heineken shares were at 85.78 euros ($106.36) in early trade, valuing the group at 49.4 billion euros.

Heineken trades on an enterprise value - market capitalisation plus debt - of 12 times its earnings before interest, tax, depreciation and amortisation in the last year. That is above Carlsberg's multiple of 10 but far short of CR Beer's 23.

($1 = 7.8336 dollars)

($1 = 0.8065 euros)

(Reporting by Julie and in HONG KONG; additional reporting by Phil Blenkinsop in BRUSSELS, Martinne Geller in London and Jourdan in Shanghai; Editing by Gerry Doyle)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, March 08 2018. 15:28 IST