By Donny Kwok and Brenda Goh
HONG KONG/SHANGHAI (Reuters) - Heineken <HEIN.AS> is taking a $3.1 billion stake in the parent of China Resources Beer <0291.HK>, China's top brewer, to tap a growing thirst for premium brands in the world's biggest beer market.
The world's No. 2 brewer will take a 40 percent holding in CRH Beer, giving it a strong distribution network in China and greater access to a market it has so far found tough to crack.
For CR Beer, the maker of the locally popular Snow beer, the deal is a way to get into the foreign-dominated premium sector at a time when Chinese demand for lower-end brands is waning.
"This (deal) will help accelerate CR Beer's Snow beer high-end strategy and achieve its goal to take a leading position in the premium market within 5-10 years," CR Beer's Chief Executive Hou Xiaohai told reporters on a call on Friday.
Snow accounts for about 90 percent of CR Beer's total beer sales volumes but is almost exclusively sold in China. CR Beer hopes to use Heineken's global network to market it abroad.
CR Beer shares initially jumped as much as 10 percent but closed down 0.99 percent, while Heineken's rose 2 percent.
"Thanks to the strong position of CR Beer and understanding of the market growth of the Heineken brand should improve in the coming years," analysts at Degroof Petercam wrote in a note.
NOT GOING IT ALONE
Heineken had struggled to compete with the dominant players in China's premium lager market such as Anheuser-Busch InBev <ABI.BR> and Carlsberg <CARLb.CO> on a national scale.
The Dutch group had a 0.5 percent share of the China market by volume in 2017, data from research firm Euromonitor International showed, while AB Inbev had 16.1 percent. CR Beer had more than a quarter share.
Heineken chief executive Jean-Francois van Boxmeer said the company would have found it hard to replicate good results it had achieved in provinces such as Fujian throughout China.
"(It) is something that would have cost way too much money and we have no time for that," van Boxmeer said on a conference call following the announcement of the deal with CRH Beer.
Heineken will inject its three breweries in China into CR Beer and license its Heineken brand in China, Hong Kong and Macau to CR Beer.
China Resources Enterprise will own the remaining 60 percent of CRH Beer and will also buy 5.2 million Heineken shares for 464 million euros ($538 million).
The combined transactions would result in a net investment of 1.9 billion euros ($2.2 billion) by Heineken, the two firms said in a joint statement.