Heineken up to mega challenge

Heineken is the odd one out in the world’s biggest beer merger, and that suits it just fine.

The world’s third-largest brewer is set to face a much larger rival as AB InBev and SABMiller prepare for their gargantuan $106-billion merger. There’s no doubt that the competition is going to get bigger, stronger and more efficient for Heineken. But the brewer seems up for the challenge.

Consider this: Heineken was one of the few big European brewers to increase sales in Europe in the first half of the year amid price competition and sluggish demand.

Analysts estimate the brewer will boost global revenue by 14% to about €22-billion by the end of 2017 — and that’s without a mega-merger to inflate its numbers. Matching MegaBrew’s size will be impossible for Heineken, with a market cap of $49-billion. But there are benefits in staying smaller and nimbler.

Maybe Heineken knew what it was doing when it rejected SABMiller’s advances last September, choosing to stay independent. While AB InBev and SABMiller are occupied with digesting their massive deal, Heineken will be in a prime position to make the acquisitions its rivals are too distracted to consider.

The growth in beer right now lies primarily in craft brews and regions such as Africa and Asia, where the drinking population is still expanding. There are many small operators up for grabs that could help boost Heineken’s growth without breaking the bank. That’s not counting the assets AB InBev and SABMiller will have to divest to win over regulators. The company has already taken advantage of the reduced competition in the merger and acquisitions market. Last week, it agreed to pay $781-million to take control of brands such as Jamaica’s Red Stripe beer and Malaysia’s GAPL from joint-venture partner Diageo. That followed a September agreement to buy a 50% stake in craft brewer Lagunitas.

Shareholders are backing the independent route. Heineken’s stock has gained about 27% since it shunned SABMiller — almost double the gains for SABMiller over that stretch. Remember, SABMiller, not Heineken, is the one that just agreed to a big premium.

MegaBrew had better watch out for the little guy. — © Bloomberg,