- The Washington Times - Tuesday, January 14, 2003

RIO DE JANEIRO, Brazil, Jan. 14 (UPI) — AmBev, the world's fifth-largest brewer, has received the green light from regulators to merge with top Argentine beer maker Quilmes, creating a company that will dominate the regional market.

While the late Monday approval by Argentine officials was a win for Brazil's AmBev — formally known as Companhia de Bebidas das Americas — several restrictions were set in place before the $600-million deal — which will give AmBev a 38-percent stake in Quilmes — can be completed.

Argentina's Ministry of Production said in its report on the merger that Quilmes, which is controlled by the Luxembourg-based company Quinsa, must sell two beer-making plants to foreign competitors that are not connected to it or AmBev.

Those competitors will be allowed to use Quilmes' distribution network for seven years.

In addition to those demands, which must be met within one year, the two companies have to sell three smaller brands, as well as give up Quilmes' license for the production of Heineken. Quilmes will be restricted to the selling of beers and cannot branch out into other beverages.

"The decision is favorable for AmBev, since the business gives up 16 percent of its industrial capacity for nearly 70 percent of the market, without losing its best brands," Basilio Ramalho, an analyst with Unibanco, told the Brazilian business newspaper Valor.

Ramalho did note, however, that the regulators' demands were tougher than expected.

"I believe that the market expected softer decision," he said.

AmBev officials have said the deal is essential for the company to grow its market share in countries beyond Brazil and Argentina — where it commands 70 percent and 15 percent of the beer markets, respectively.

Quilmes holds 70 percent market share in Argentina, almost the entire market in Bolivia, 80 percent in Paraguay and 55 percent in Uruguay. In those last three countries, AmBev holds most of the market share not captured by Quilmes.

Since being announced last May, the deal has faced legal hurdles as local competitors cried foul. Additionally, Heineken — which holds a 15 percent stake in Quilmes — has said the deal would violate its contractual right to refuse such a move.

But on Tuesday, Heineken said in a statement on its Web site that it will sell its 15-percent stake in Quilmes if the deal with AmBev gains final approval.

In the same statement, Heineken said that it had agreed with Germany's Schorghuber Corporate Group to buy its 50-percent stake in Argentina's IRSA, the company that controls Chile's major brewer, CCU.

Heineken said it plans to transfer its South American production license from Quilmes to CCU "as soon as practically possible."

"With this transaction, Heineken will be able to focus on the further expansion of its operations in the region. It also puts an end to the deadlock situation in our relationship with Quilmes," Heineken's Chief Executive Officer Thony Ruys said in the statement.

In mid-afternoon trading, AmBev's shares in Brazil were down 0.44 percent, while Quinsa's New York-listed issues were up nearly 3 percent.

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