UB, Heineken toast a tie-up

Ending an almost two-year-long dispute over partnership with the Vijay-Mallya owned United Breweries Ltd, Heineken NV, the world's third-largest brewery firm, on Monday agreed to permit UBL to brew and market the Heineken brand in India.

The beer-maker agreed to a key demand by Mallya that it merge its Indian joint venture arms into the United Breweries fold for Heineken to get equal representation on the board of UB, India's largest brewery firm.

The Heineken brand is likely to be launched by the beginning of the summer season of 2010, the company has said. UBL will receive a licensing fee.

Heineken will be sold through the same UB network as distribution of beer and liquor is common. Heineken, on its part, will use its global distribution system to market the Kingfisher brand in overseas markets.

Heineken became a 37.5 percent shareholder in UBL after it bought this stake from UK-based brewery firm Scottish & Newcastle in a global deal in January 2008. After the deal, however, it was not allowed to become an active shareholder and leverage UB's distribution strength since it had a joint venture with Singapore's Asia Pacific Breweries, which was in direct competition to UB's brands like Kingfisher in India.

APB's portfolio of brands includes Tiger Beer, Heineken Anchor and ABC Stout. It operates breweries in 12 Asian countries and exports to more than 60 countries.

Heineken will now acquire Asia Pacific Breweries India comprising Asia Pacific Breweries (Aurangabad) Pte Ltd and Asia Pacific Breweries-Pearl Pte for Rs 174 crore. Once this transaction is completed in the first quarter of 2010, Heineken intends to transfer these businesses to UBL. APB is a joint venture between Heineken and Fraser & Neave Ltd.

APB brands will now be present in India directly from ABP Singapore and not through APB India. UBL, however, has the option to license and sell the Tiger brand in India, an issue on which it will take a call later.

Terming India the "last frontier of the global beer market", Jean-François van Boxmeer, chairman of Heineken's executive board and CEO, said a strong Indian presence is important to the company to increase its exposure to and growth from developing markets.

Mallya said the agreement with Heineken would help UBL further its leadership in the Indian market in the years to come.

UBL reported a net of Rs 62 crore on a topline of close to Rs 1,700 crore in the past fiscal and had a market share of 48 percent. For the half-year ended September 30, UBL's sales volumes grew by 16 percent against an industry growth of 8 percent.

Heineken will also merge its interest in Millennium Alcobev Private Limited into UBL. Heineken holds 50 percent equity in MAPL with the other 50 per cent held by UBL.

This was the joint venture through which Scottish & Newcastle first invested in India and has been managed as part of the UBL's business following the direct investment in UBL by Scottish & Newcastle in 2004.

S&N had a 50 percent share in this joint venture, which Heineken inherited and which it will now transfer into UBL.

Under the new shareholder agreement with UBL Heineken will have the right to nominate three members of UBL's eight-member board, including the executive position of chief financial officer.