Sri Lanka: Distilleries Company acquires Heineken’s Lankan business

Business tycoon Harry Jayawardena-controlled Distilleries Company of Sri Lanka (DCSL) has acquired the local operations of global beer giant Heineken for Euro 12 million or over Rs. 4.2 billion, the Daily FT reported on January 12.

In a disclosure to the Colombo Stock Exchange, DCSL said it acquired 99.4% of the issued capital of Heineken Lanka Ltd., from Heineken Asia Pacific Pte. Ltd. (Heineken) for a total consideration of Euro 12 million. With this acquisition, Heineken Lanka Ltd., will change its name to DCSL Breweries Lanka Ltd. to reflect the new ownership.

The company will continue brewing beer under world-renowned international brands such as Heineken, Tiger, and Anchor under a Trademark Licence Agreement signed with the Heineken Company. It will also continue to brew its own brand, Bison beer.

“This acquisition and the continued production of world-renowned Heineken brands under license will ensure that consumers can continue to enjoy these brands,” DCSL said.

It also said the DCSL Group, a pioneer in the liquor industry in Sri Lanka with well over a century of producing quality products, will now add beer to its diverse product portfolio.

The impending deal was first announced by DCSL in November last year.

Fitch Ratings in November said Heineken is a distant second in Sri Lanka’s beer market for now, but believes DIST has the industry know-how, market access and financial strength to elevate Heineken’s operations to a level that could weigh on Lion’s market share.

It said a large capacity expansion at Heineken Lanka would be required to compete effectively with Lion. Fitch estimated the expansion will require significant capital outlay and at least two to three years to complete.

Fitch said it believes DIST has the financial strength to fund the expansion, with its annual free cash flow, excluding dividends, averaging Rs. 10 billion-12 billion. DIST, as the largest spirits manufacturer in the country, already has extensive market access covering all forms of retail channels, providing easy market penetration compared with a new entrant.

However, Fitch expects DIST to face near-term challenges in terms of brand building given the complete ban on media advertising on alcoholic beverages by the Government. Lion already has a very strong brand presence in the market compared with Heineken due to the greater mass-market appeal of its products, with cheaper pricing and customisation to local preferences.

Fitch said it expects the acquisition to be positive for DIST as it will help the company to strengthen its market position with a presence in both hard and soft liquor markets. The acquisition will also allow DIST to take advantage of the lower excise duties applicable to beer on an alcohol-equivalent basis. There has been a shift to beer from hard liquor in recent months due to the significant increase in excise duties. DIST could also benefit from the revival in Sri Lanka’s tourism industry, as beer is more popular among tourists than locally made hard liquor.

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