Dutch brewing giant Heineken NV (AMS: HEIA) (OTCQX: HEINY/HKHHY) said it agreed to acquire Brasil Kirin Holding SA, one of the largest beer and soft drinks producers in Brazil, from Japanese beverage company Kirin Holdings Co Ltd (TYO: 2503) for EUR 664 million ($706.5 million), reflecting an enterprise value of approximately EUR 1 billion ($1.09 billion). At closing, Amsterdam-based Heineken will become the second largest beer company in Brazil after AmBev.

The move comes after Brasil Kirin reported an operating loss of BRL 262 million for 2016. Kirin, founded in 1885, is a member of the Mitsubishi UFJ Financial Group (MUFJ) (NYSE: MTU) (TYO: 8306) keiretsu.

The deal will transform Heineken’s existing business across the country by extending its footprint, increasing scale and further strengthening its brand portfolio. Heineken is the world’s most international brewer, and the leading developer and marketer of premium beer and cider brands, with roughly 73,000 employees, operating 167 breweries, malteries, cider plants and other production facilities in more than 70 countries.

“This transaction marks a step-change in scale in an exciting beer market, building on our success to date in the premium segment and strengthening our platform for future growth,” said Jean-Francois van Boxmeer, Chairman & CEO of Heineken.

Brazil is the fifth largest country in the world with over 200 million people. Beer volume in 2015 was 139 million hectolitres, making it the third largest market globally.

While the macroeconomic environment has been challenging over the last few years, the longer term fundamentals of the Brazilian beer market are highly attractive supported by a growing population and a positive GDP outlook. In addition, the premium segment of the beer market, which has outperformed the broader beer market in recent years, has a relatively low share compared to many other markets, providing a compelling and attractive opportunity for future growth.

Brasil Kirin is a large beer producer in Brazil, operating 12 production facilities with its own distribution network. It has a particularly strong presence in the North and North East, where Heineken currently has less exposure. It owns an extensive portfolio of beer brands and its share of the Brazilian beer market in 2015 was around 9%. The portfolio includes Schin, one of Brazil’s largest brands covering the mainstream and value segments, as well as the Devassa brand. Furthermore, it owns the speciality brands Baden Baden and Eisenbahn, which will complement Heineken’s existing premium portfolio.

Brasil Kirin also has a soft drinks business comprised of carbonated drinks, bottled water and other beverages. The soft drinks portfolio, which has around 2% market share, includes the iconic Itubaína brand.

Heineken expanded its footprint in Brazil through the acquisition of the beer operations of Fomento Económico Mexicano (FEMSA) in 2010. Since then, Heineken has increased its market share to about 10%, led by its Heineken brand in the outperforming premium segment. At the same time, Heineken has continued to build scale with the Kaiser and Bavaria brands, and has recently seen strong success with the roll out of Amstel in the mainstream segment. Heineken currently operates 5 breweries in Brazil and has a strategic distribution partnership with Coca-Cola bottlers.

Heineken expects to deliver significant cost synergies from the acquisition through production efficiencies, including logistics and brewery optimization, and through optimizing selling, general and administrative expenses. The deal is expected to be dilutive to Heineken’s margin in 2017.

Completion of the acquisition is subject to customary regulatory approvals and is expected in the first half of 2017.

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