Heineken announced to have signed a binding agreement with Royal Unibrew on the sale of Heineken’s Hartwall business. Hartwall is a multi-beverage company active in Finland, with revenue of about € 300m and EBITDA (beia) of about € 50m in 2012, which corresponds to an EBITDA (beia) margin of about 16.7%.
The Enterprise Value of the transaction is about € 470m which values Hartwall at about 9.4x EV/EBITDA12e. The transaction is subject to antitrust approval and other customary closing conditions, while expected by Heineken to close in 4Q13 at the latest.
Heineken and Royal Unibrew will also extend their existing partnershipsas follows: Royal Unibrew gets a license to brew Heineken beer for Finland, Estonia, Latvia and Lithuania for the next 10 years (recall that Royal Unibrew already brews the Heineken brand in Denmark and distributes the brand in the Baltic countries). Furthermore, Hartwall will remain the exclusive distributor of Heineken’s global and international brands (such as Sol, Strongbow, Newcastle Brown Ale, etc) in Finland.
Hartwall will be recorded as an asset held for sale as from the end of June 2013.
Our View:
The divestment is no surprise as Heineken already previously responded to market rumours by announcing it was exploring the strategic options for its Hartwall business. Hartwall was to a significant extent a non-beer business (we understood Hartwall sells about 3m hl beverages of which only 1.1m is beer) and was not really integrated in the rest of the company. The Finnish beverage market is pretty competitive while there has been a significant shift towards the discount segment. As a result, Hartwall’s EBITDA (beia) margins are well below Heineken group average 16.7% vs approximately 22%. The proceeds of this transaction will be used for deleveraging and Heineken repeated an earlier target of reducing net debt/EBITDA (beia) ratio to below 2.5x by the end of 2014 (KBCS already assumed about 2.2x before this transaction was announced).
All in all, the impact of the sale on our investment case is minimal. Note that the multiple received is fairly close to Heineken’s group average (Hartwall 9.4x EV/EBITDA12 vs Heineken 9.9x EV/EBITDA13e), despite the lower profitability. We see no reason to change our rating & target price, so Accumulate and € 60 target price are maintained.