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By Julie Zhu and Kane Wu
HONG KONG (Reuters) - China Resources Beer (Holdings) Co Ltd is in talks to acquire Heineken NV's China 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 beer giants such as Heineken, AB InBev (ABI.BR) and Carlsberg (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.
One of the sources said the deal between CR Beer and Heineken would most likely include three breweries - in Guangdong, Hainan and Zhejiang 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.
CR Beer 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 distribution network 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 company has invested millions of dollars in promoting Heineken as the global lager of choice, predominantly through sports, including soccer and Formula One. Next month will mark its second time as prime sponsor of the Chinese Grand Prix.
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.
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.
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 Hong Kong 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 Hong Kong dollars)
($1 = 0.8065 euros)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)