Royal Unibrew bolsters position with acquisition of Hartwall

Royal Unibrew cemented its position as the Nordic region’s second-biggest brewer by buying Heineken’s Finnish business for DKr2.8bn (€375m).

The Danish brewer, ranked only behind Carlsberg in the region, will partly fund the acquisition of Hartwall, Finland’s second-largest beer company, by selling 10 per cent of its own shares to the Hartwall family and by stopping its dividend and share buyback programmes.

The acquisition, for a total enterprise value of DKr3.3bn, also strengthens Unibrew’s co-operation with Heineken and PepsiCo as Hartwall produces beverages for both under licence.

Unibrew shook off competition for Hartwall from private equity groups Nordic Capital and Cinven as well as consumer goods company Orkla, according to bankers working on the deal.“Hartwall and the Finnish market are in many ways similar to our Danish operations, and we are confident that as a long-term focused owner . . . we will be able to increase Hartwall’s commercial and operational strength and thus improve earnings,” said Henrik Brandt, Unibrew’s chief executive.

Heineken said the fact that 70 per cent of Hartwall’s business was in non-beer categories such as water, wine and spirits made it a difficult fit for the group.

“Scandinavia is very much Carlsberg territory, so in Finland Hartwall was a standalone business, not really integrated in any other Heineken business,” said John-Paul Schuirink, a Heineken spokesman. “We thought the future growth perspectives would be better served if it were part of a dedicated multi-drinks Scandinavian company.”

The sale also helps Heineken to reduce some of the debt load it built up last year with its $4.5bn purchase of Asia Pacific Breweries, the Singapore-based brewer that makes Heineken and Tiger beer in southeast Asia.

That deal drove Heineken’s ratio of net debt to earnings before interest, taxes, depreciation and amortisation (ebitda) to 3.1 at the end of 2012. The group has promised to bring the ratio down below 2.5 by the end of 2014.

Unibrew at the same time extended its partnership with Heineken, meaning it has the rights to brew the Dutch beer in Finland and the three Baltic states. Unibrew already brews Heineken in Denmark and it and Hartwall together are distributors for the brand in Finland, Estonia, Latvia and Lithuania.

The Danish brewer said the debt burden resulting from the deal meant it would stop both dividends and share buybacks but that it hoped to resume them in 2015. It also cut its medium-term operating margin target from 14 per cent to 13 per cent, saying that last year if it included Hartwall it estimated its margin was 11.7 per cent.

Unibrew said it saw opportunities to boost Hartwall’s earnings by optimising operations despite a declining Finnish market.

Hartwall, which also produces water, soft drinks and cider, made revenues of about DKr2.3bn to Unibrew’s DKr3.3bn last year. But its operating margin was lower at 9.1 per cent compared with 14.4 per cent for the Danish brewer.

Shares in Unibrew were down 6.4 per cent at DKr512 in Thursday morning trading.

By Richard Milne, Nordic Correspondent of Financial Times

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