Russia: Beer market consolidation is brewing

The consolidation in Russia's beer market, the world's fifth-largest beer after China, continues. On Wednesday, July 6, Heineken NV announced the purchase of one brewer and Alfa Group Consortium's private equity arm took control of another, The Deals.com commented on July 6.

OOO Alfa-Eco's purchase of Pivindustria Primoria is seen as an opportunistic attempt to flip the company and turn a quick profit in Russia's fast-consolidating and fast-growing beer market. Russia is the world's fifth-largest beer market after China, the U.S., Germany and Brazil, and Heineken expects the market to grow by 5.5% this year to more than 89 million hectoliters (76 million barrels).

"Alfa-Eco will soon resell the company as it has done with its stakes in SUN Interbrew and Patra Brewery," said Alexei Yazikov, senior analyst at Moscow brokerage Aton Capital. Alfa-Eco said it purchased a 29% stake in Pivindustria Primoria from InBev SA's Russian venture, SUN Interbrew Ltd., which takes its total holding to 97% after it acquired a 67% stake in the brewer from Russia's Wimm-Bill-Dann Foods OJSC last month.

Alfa-Eco did not disclose the amount it paid for the stake, though analysts estimate Pivindustria Primoria to be worth about $48 million.

One of the favorites to buy out Alfa-Eco is the increasingly acquisitive Heineken, which is the third-largest brewer in Russia, with a 10% share of the market after Wednesday's deal. The second largest brewer is SUN Interbrew with a 15.5% share, while the market leader is Baltic Beverages Holding AB, a joint venture of Scottish & Newcastle plc and Carlsberg Breweries A/S, with a 37.4% share, according to market research firm Business Analytica.

Heineken said Wednesday it has agreed to buy St. Petersburg-based Stepan Razin Brewery after filing for permission with Russia's antimonopoly watchdog on June 24. No price was disclosed but analysts valued the deal at about $140 million.

And SUN Interbrew is in talks to buy the high-end brewer Tinkoff Group for an estimated $300 million.

Analysts predict that within the next 18 months, all of Russia's medium and large independent brewers will be in the hands of multinational corporations.

One of the few remaining is Ivan Taranov Brewery, which this week put itself up for sale, Reuters reported on July 1. The company couldn't be reached for comment. Five firms are reportedly interested in bidding for Russia's seventh-biggest brewer, including SABMiller plc and Efes Breweries International NV as well as Russia's three largest brewers.

With around 5% of Russia's beer market, analysts estimate Ivan Taranov, which is 38% owned by the U.S. private equity firm Texas Pacific Group and the rest by management, to be worth around $400 million.

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