Analysis Of Merger Structure Between Huarun And Heineken: Ensuring China'S Holding

"Last year, Huarun venture and Huarun beer formed a global strategic partnership with Heineken, winning the Asian financial magazine's best M & A award. Recently, Hou Xiaohai, general manager of Huarun, told reporters on twenty-first Century economic report.

The strategic cooperation between Huarun group and HeineKen group consists of four transactions, namely,

Huarun group (beer) Co., Ltd. (CBL), with a total cash consideration of approximately HK $24 billion 350 million (equivalent to the implied price of HK $36.31 per share), is placing a new stock equivalent to 40% of the issued share capital of the Heineken group (according to the share expansion and dilution ratio) to the CBL group. After the implementation of the transaction, CBL will still be a subsidiary of Huarun venture.

Huarun started to buy 5 million 200 thousand shares of Heineken N.V. treasury stock (equivalent to 0.9% of Heineken N.V.) at a total cash consideration of about 460 million euros.

The same is to sell part of the equity and market in exchange for the brand licensing, technology and management of international beer giants, but the agreement signed between Huarun and HeineKen is different from any previous joint venture of Chinese beer producers. Huarun bought HeineKen group's three factories and sales companies in China with HK $2 billion 350 million in cash.

Huarun and HeineKen signed a trademark licensing agreement for exclusive use of HeineKen brand in the exclusive territory, and signed a framework agreement on long-term strategic cooperation between the two sides.

"This award, the organizers highly appraised the design of the transaction structure. No matter how complicated the trading structure is, Fu Yuning has decided two: first, China will ensure holding; two, how much to sell and how much authorized negotiating group has the final say. Hou Xiaohai said.

Not holding shares at the listed company level

This project transaction is more complex, the operation difficulty is bigger, the fluctuation is bigger. These four transactions, there are many companies in it, buyers and sellers, the risk of the whole associated transaction and the setting of the transaction is great. Therefore, we must ensure fair, fair and equal transaction principles in the case of effective evasion of risks, and the design of each clause needs careful layout.

From the level of mergers and acquisitions, Huarun involved Huarun group's Huarun venture, Huarun beer, and then to the specific use of HeineKen trademark "Snow Beer" (China) Co., Ltd., the group involved the group itself, group listed Heineken N.V., listed company subsidiary international.

"In the equity setting, if the direct transfer of shares of listed companies to HeineKen group, the other party may buy shares through the two tier market, so that the Huarun group's holding power has a risk of being sidelined." Hou Xiaohai said. In the end, the first transaction was conducted at the shareholding level of Huarun's parent company CBL, and HeineKen group indirectly owned 20.67% of Huarun Huarun listed company.

"In addition, the transaction targets relate to the mainland, China, Hongkong and Europe. There are many rules applicable to the whole project transaction, and there are many types of transactions. In the process of writing and approving transactions, we should consider the mainland of China and consider Hongkong and Holland. Hua Chuang, Huarun beer, snowflake beer, many subjects, the responsibilities of each body are different; we light board on three, CBL board of directors, 0291 board of directors, CRSB board of directors, three board agreement will have to talk about, each board responsibilities should be listed on the appropriate listed companies or non-listed company, to clarify the rights and responsibilities. Hou Xiaohai said.

Hou Xiaohai further said that in the negotiations between the two sides, HeineKen felt that it was impossible to hold the controlling stake of Huarun beer, and chose 40% in 49% and 40%. "Less than 40% holding shares is too small, HeineKen group is very difficult to share the growth of China's high-end beer market results." Hou Xiaohai explained.

As for the second transaction, Huarun venture bought Heineken N.V.0.9% equity. "We are not a financial investment, but a cross shareholding behavior. At present, Huarun venture has no possibility of further increasing HeineKen. " Hou Xiaohai said. Heineken N.V. is listed on the NYSE Euronext, a listed company of HeineKen group.

In addition to the merger and acquisition frameworks that run through their respective groups, the two sides have also established a special mechanism, namely, the strategic Steering Committee of Huarun and HeineKen, which is the strategic Steering Committee of the two sides. The chairman of Huarun group, Fu Yuning, leads the joint HeineKen global CEO to convene a regular meeting to study the development of the international and domestic beer industry and promote further cooperation around the world. "This is an ingenious mechanism." Hou Xiaohai said.

Both sides have access to development opportunities.

"Now the integration of both sides is progressing smoothly and exceeding the expected speed." Hou Xiaohai said.

He said that these four transactions led by Chairman Fu Yuning, Chen Lang and his participation in the whole process are of great significance.

First, Huarun beer has the greatest opportunity for development.

"HeineKen beer, as the flagship of Huarun beer international brand, plus other brands of HeineKen beer, can form a double combination of international brands and Chinese innovative brands, providing strong support for our success in the decisive battle of China's beer market." Hou Xiaohai said, in three to five years, Huarun's market share in the high-end market is close to Budweiser. He judged that Chinese brands had significant opportunities in the high-end market, and international brands also had significant opportunities, which may be 55 points or 46 points, so Huarun must strategically do so.

In January 20th, Huarun released the first performance announcement of domestic beer listed companies. According to the notice, according to the unaudited preliminary assessment, the company's profit last year increased by at least 30%. As for the huge growth in profitability last year, Huarun has specifically attributed four reasons to Huarun's performance forecast, one of which is "HeineKen's contribution to China since the completion of HeineKen's acquisition in China last April 29th".

The two is to create a substantial return for Huarun group. As a central enterprise, Huarun group first divested the bad assets and property in the reform of state-owned enterprises, and then repurchased the shares at a low price to replace the "cage for birds", introducing the international high-end brands and participating in the global beer market structure. This process realized the preservation and appreciation of state assets, and the market value of Huarun was 3 times that before the reform.

Hou Xiaohai calculated the bill: in 2016, Huarun group spent a total of HK $12 billion 400 million to buy a 49% stake in SABMiller. After changing the management level, the market value climbed over 100 billion yuan. Huarun group sold the shares back to HeineKen 40%. After the market value premium, it sold 30 percent off HK $about 10000000000 and sold HK $about 24000000000. Before signing two agreements, Huarun earned HK $about 20000000000.

"As for the future, although there will always be uncertainties in the business sector, no matter how Huarun develops and how high the market value is, it will have a crucial relationship with this transaction." He said.

Three, it provides a good platform for the development of HeineKen group in China.

On August 3, 2018, when the two sides signed a framework agreement on equity trading, HeineKen held a meeting that China's beer was predicted to be the largest market for the growth of high-end beer in the next five years. In the context of high-end, China's portfolio products are growing, requiring international brands and cost optimization. Therefore, the cooperation between Huarun and HeineKen will promote Huarun's high-end strategy and open up the potential of HeineKen brand in China.

Last December 16th, the Jiaxing municipal government of Zhejiang signed a contract with Huarun (Group) Co., Ltd. According to the agreement, Huarun snowflake beer plans about 300 million yuan, expanding the capacity of HeineKen beer in Jiashan, Zhejiang, from 20 million liters to 30 million liters.

In February 12th, HeineKen group announced its 2019 earnings report. The results showed that HeineKen's operating income in the Asia Pacific region increased by 10.9% over the same period last year.