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. Last Updated: 07/27/2016

Heineken Strikes $400M Deal for Bravo

Europe's biggest brewer Heineken announced Friday that it is acquiring the St. Petersburg-based Bravo International brewery in a deal worth up to $400 million.

The sale, which industry insiders called the biggest of its kind, gives the Dutch giant a foothold in the lucrative Russian beer market, with its first Russia-based brewery, and the option of producing Heineken domestically, the company said.

"Since Russia has very high import duties, the Heineken brand will have a competitive advantage in the Russian premium market when it is brewed in the country itself," Heineken said in a statement.

The brewer said the acquisition will be financed from its own resources and have a healthy effect on 2002 per share earnings.

Heineken shares closed up 1.86 percent at 45.53 euros on Friday before the announcement was made.

The deal will be worth up to $400 million provided Bravo International meets certain volume and price targets over the next 12 months, Heineken said. Beer output alone is expected to almost double to 40 million decaliters in 2002.

Heineken officials contacted in Amsterdam on Sunday declined to provide further details about the sale or their plans for Russia.

With the purchase, Heineken gains control of a brewery with an annual capacity of 50 million decaliters and the successful Bochkarev brand, which Bravo launched from scratch with a $35 million investment in March 1999.

Bravo International is part of Bravo Holdings, established by a group of Icelandic businessmen in 1993. The company that year set up a bottling line that quickly became the country's biggest manufacturer of alcoholic cocktails, according to Bravo's web site. The company built the St. Petersburg brewery during the 1998 crisis, and the first beer rolled off the production line in February 1999.

In addition to Bochkarev, the brewery makes low-alcohol Bravo cocktails, Okhota beer and Lowenbrau and Bear Beer under license.

Bravo has a 17 percent market share in St. Petersburg and a 7 percent market share in Moscow, Heineken said.

In 2001, Bravo sold 25 million decaliters of beer and 4 million decaliters of mixed drinks.

Heineken's total annual volume is about 1 billion decaliters.

Bravo's investors have wanted to sell their brewery from the get-go, said Kim Iskyan, an analyst at Renaissance Capital. "One day they looked at Russia and thought, 'Wow, what a great market,'" he said. "They made a brewery out of nothing. Selling it on had always been a part of the big picture."

The big question, he said, is why on a market plump with foreign investment did the purchase come so late?

"Heineken has been looking for a way to get onto the Russian market for years," Iskyan said. "Now they are getting in late, so they're having to pay the price. It's not ideal from their perspective -- ideally they would have done it five years ago. Now they're playing catch-up."

The top four positions are held, respectively, by Scandinavian-controlled Baltika with more than 20 percent of the market share, Sun-Interbrew with about 15 percent, Ochakovo and Krasny Vostok.

Vyacheslav Mamontov, head of the Russian Brewers' Union executive secretariat, said he was not surprised by the news of the acquisition.

"The Russian beer market is attractive for foreign companies," he said. "This is the latest step in this direction."

While Heineken has exported to Russia since the 1980s, it is hoping that the purchase of Bravo International will give it a "broad position" on a market that it anticipates will become the fifth biggest worldwide in the coming years.

The brewer expects Russia to overtake Britain and Japan but continue to lag behind No. 1 United States, China, Germany and Brazil.

Russia has a long way to go to catch up with the leaders. Per capita, Russians drink just 37 liters of beer a year, while Germans, the biggest beer drinkers, on average consume 131 liters a year, the Financial Times reported, citing industry estimates.

Last year, 627 million decaliters of beer were produced in Russia, up 14.5 percent on 2000, according to the Russian Brewers' Union. Growth of 10 percent is expected for 2002.

It was not immediately clear how much beer Heineken imported to Russia last year. However, imported beer accounts for a mere 1.5 percent of the market, according to the Russian Brewers' Union.

Heineken is the largest brewer in Europe and the second largest worldwide in terms of production. Its more than 80 brands are available in over 170 countries.