Heineken, the world’s second-largest brewer, agreed on Monday to buy the loss-making Brazilian breweries of Japan’s Kirin Holdings to boost its presence in the world’s third-biggest beer market.
The Dutch brewer will become the number two brewer in Brazil, with a share of some 19%, behind clear market leader Anheuser-Busch InBev (bud). Including debt, Heineken said it would pay 1.025 billion euros ($1.09 billion).
For Kirin (knbwy) it marks a departure from the Brazilian market, having paid some $3.9 billion in 2011 for 12 breweries, a business which has subsequently lost market share and seen raw materials costs rise due to a weak currency.
Kirin said that Brazil’s economic risks and a stagnant and competitive beer and soft drink market meant there were “limitations” to making Brasil Kirin profitable. Kirin said the unit made an operating loss of 284 million reais in 2016.
Brazil’s economy appears set to enter a third year of recession in 2017, but Heineken (hkhhf) said that its beer market was attractive in the longer term, with a premium segment growing faster than the market as a whole.
The acquisition will increase Heineken’s presence in the north and north-east of Brazil, allow it to boost sales of the premium lagers Heineken and Sol and yield cost savings.
It already has five breweries in Brazil from its 2010 acquisition of the beer business of Mexico’s FEMSA.
“None of the normal ratios work because it’s loss-making, but it’s a very attractive price,” said Trevor Stirling, beverage analyst at Bernstein Research.
Some analysts have also said the deal is important as it makes Heineken a stronger rival in a heartland of global beer leader AB InBev just as the latter has pushed into Heineken’s markets elsewhere through its takeover of SABMiller.
The acquisition, dependent on approval by Brazil’s antitrust agency, is expected to close in the first half of the year.
Separately, Kirin said it would take a 51% stake in a beer company in Myanmar. The company, Mandalay Brewery, will be 49% owned by Myanmar Economic Holdings. Kirin and Myanmar Economic Holdings already run already another beer joint venture, Myanmar Brewery.
Kirin also said it had ended capital alliance talks with Coca-Cola Group, though the two companies would continue to discuss a potential operational partnership.