United Breweries

   ON Monday, United Breweries (UB) and Heineken announced that the differences, which had been on for a year, had been ironed out. Simply put, this will pave the way for the sale of Heineken in the Indian market. In a press statement, UB said, "The Dr Vijay Mallya Group, Heineken and UB have entered into a new shareholders' agreement and thereby have resolved their differences amicably. Consequently, the litigation initiated inter se will be withdrawn." 

   The differences between Heineken and UB arose on account of Asia Pacific Breweries (APB) India, which is a joint venture between Heineken and Singapore based Fraser and Neave. Heineken had acquired a 37% stake in UB, through its global acquisition of Scottish and Newcastle (S&N) in January 2008. 

   In the acquisition of S&N, Heineken got the UK and Indian assets while Carlsberg took control of a joint venture with Edinburgh-based S&N in Russia. UB's contention was that Heineken could not be part of two separate joint ventures in India. Not surprisingly, this tricky situation took a while to resolve. Mallya, who is chairman of the UB Group, "We did everything right on the deal. This truce is merely a result of that."
   In line with what has been agreed upon, Heineken will pay 25 million Euros to its JV partner and make Asia Pacific Breweries India, a wholly owned subsidiary. After this, it will transfer the company to UB in 2010. 

   Under the terms of agreement, Heineken has the right to nominate three members of the UB Board including the CFO. Its members will be René Hooft Graafland, member of Heineken's Executive Board and CFO, and Siep Hiemstra, regional president, Heineken Asia Pacific, have been appointed to the board of UBL as Heineken's non-executive directors. Guido de Boer has been appointed as CFO and executive director of UBL.

   Heineken is positioned in the premium market segment in India, which accounts for 5-7% of total beer sales. The agreement, said UB's statement, will allow Heineken and UB to reinforce the development of the Heineken brand and accelerate the growth of the premium beers segment in India. "At the same time, UB will work with Heineken to expand the international presence of the Kingfisher brand through Heineken's global footprint," it said.
   With the dispute now being resolved, it has resulted in a win-win situation for both the partners. With per capita beer consumption in India at just 1.3 litres per annum, compared to about 50 litres in developed countries, the growth potential looks big. 

   In 2008-09, the beer market grew by about 10% in India and saw sales of 174 million cases. UB is a dominant player in the market with about a 50% market share. The acquisition of Heineken will help it increase its market share further. "United Breweries is set to capitalise on the global foothold of Heineken and use its international distribution platform to market Kingfisher globally", says Abhijit Kundu, analyst, Antique Stock Broking. A win-win situation for both companies.