Mon, May 24, 2004 - Page 10 News List

Australia's Lion Nathan in talks with Heineken

BLOOMBERG

Lion Nathan Ltd, Australia's second-biggest brewer, is in talks with Heineken NV about a joint venture in China, where brewers are trying to consolidate and gain a bigger slice of a US$6 billion beer market.

Lion Nathan, which hasn't been able to make a profit from its China brewing business for the past seven years, last week agreed to brew Amsterdam-based Heineken's premium lager in Australia.

"We have been having talks with Heineken beyond just Australia," Chief Executive Gordon Cairns told Channel Nine TV's Business Sunday program.

"They're in China, we're in China, and maybe something will work out between us," he said, adding that a deal may be agreed by October, when he resigns, but was probably 12 months away.

Cairns said he wanted to "close the chapter" on the Sydney-based brewer's strategy of selling beer on its own in China, as the company wasn't big enough to compete against rivals. Lion Nathan values its China beer assets at A$100 million (US$70 million).

"I think Heineken wants to expand its production by partnering with Lion Nathan," said Qiu Liqiang, an analyst at China Securities Co in Beijing. And Lion Nathan "needs Heineken's brand and financial support," he said.

Heineken, the world's third-largest brewer, imports beer to China and through a venture with Asia Pacific Breweries Ltd owns breweries in Shanghai and Hainan and a stake in a Guangdong brewery. Lion Nathan owns breweries in Wuxi, Suzhou and Changzhou.

Heineken "are obviously ambitious to do something in China" and have "much deeper pockets" than Lion Nathan, Cairns said.

Brewers are betting rising incomes will boost demand in China, whose 1.3 billion people each drink an average of 18 liters of beer a year compared with 70 to 80 liters in Europe, based on figures from Tsingtao Brewery Co and Brewers of Europe, a trade association.

"Foreign beer makers are adjusting their strategy now by acquiring local factories and targeting lower end consumers. They had some setbacks in China by adopting the wrong strategy," Qiu said.

He said Heineken was not doing well as its brand can only be found in hotels and bars, and was not a household brand.

Anheuser-Busch Co, the world's biggest brewer, and No. 2 SABMiller Plc are set to battle for control of Harbin Brewery Group Ltd, China's fourth-biggest beermaker. London-based SABMiller bid for all the shares in Harbin three days after Anheuser-Busch announced it was buying 29 percent of Harbin.

Other brewers operating in China include Interbrew SA and Edinburgh-based Scottish & Newcastle Plc.

Cairns told Channel Seven's Sunday Sunrise TV program he was "indifferent" about which company Lion Nathan joined.

Anheuser-Busch owns 9.9 percent of Tsingtao Brewery Co, China's largest brewer. Scottish & Newcastle agreed in December to buy a 19.5 percent stake in Chongqing Brewery Co.

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