UB-Heineken announces strategic biz arrangement

Indias largest beer company to sell the worlds largest beer brand

In an agreement signed by UB Group Chairman Vijay Mallya and Heineken Executive Board Chairman & Chief Executive Officer Jean-François van Boxmeer in London, on Monday, it was announced that Heineken will manufacture and market its world-renowned beer ‘Heineken’ only through UBL.

It will also merge its other Indian operations Asia Pacific Breweries (APB) with UBL and may transfer four brands under it. Heineken in turn will help marketing UBL’s largest beer brand ‘Kingfisher’ among the 67 global markets it is currently present.   

Following the agreement, both partners have decided to withdraw all litigations they filed against each other. Last year Heineken had indirectly acquired 37.5 per cent stake in UBL following a worldwide takeover of Scottish & Newcastle (S&N) in January 2008. S&N was Mallya’s equal joint venture partner in UBL.

The UB Group opposed the indirect buying of UBL stake by Heineken and Mallya demanded to resolve the conflict of interest (as Heineken also had presence in India through APB) opined that the acquirer should operate only through one entity — UBL.  Together UB group and Heineken will hold 75 per cent stake in UBL (37.5 per
cent each) and the balance is held by public.

Commenting on the agreement in a conference call from London UB Group Chairman Vijay Mallya said, “Indian beer market has seen a strong growth over the last several years. Helped by our new alliance with Heineken, which is among the most respected and recognised names all over the world, United Breweries will further strengthen its leadership position in the years to come.”

Under the new agreement, Heineken has the right to nominate three members of the UBL Board. Its nominee Guido de Boer has been appointed Chief Financial Officer, and Rene Hooft Graafland (Member of Heineken N V’s Executive Board and Chief Financial Officer) and Siep Hiemstra (Regional President, Heineken Asia Pacific) have been appointed as non-executive directors in UBL.

No competition

On its part, Heineken has decided to merge its existing company APB with UBL by 2010. APB has two breweries, one at Aurangabad, Maharashtra and the other in Andhra Pradesh and sells beer under the brand names Tiger, Cannon and Baron.

The valuation for the merger of breweries and brands will be decided by a high-level group formed as per the new agreement, Mallya explained. On its part UB group will bring its Balaji Brewery in Tamil Nadu under the UBL.

Even after all subsequent mergers the shareholding between the two promoters will remain equal.As per the plan Heineken also intends to merge its interest in Millennium Alcobev Private Limited (MAPL) into UBL. Heineken and Mallya group hold 50 per cent each in MAPL.

Commenting on the deal Boxmeer said “In the world of beer, there is no bigger or more exciting growth opportunity than India. Our partnership and the combination of the Kingfisher and Heineken brands will transform our ability to unlock the market’s considerable potential and to shape the premium segment.”

Heineken beer will be brewed in UBL’s breweries spread over many Indian states and will be positioned in the premium category of the beer market, above Kingfisher. “Our country-wide distribution of brewing facilities and our excellent strong distribution network will be used to sell this world class beer Heineken,” Mallya said.