Categorized | Beer, News

Three Brewers Eyeing Mexico’s FEMSA


Three brewers are interested in buying Mexico’s FEMSA Cerveza in a $7.5 billion plus auction, with SABMiller the front runner in a deal likely to be sealed in January, sources close to the situation said Friday

Europe-based brewers SABMiller and Heineken are both keen to buy one of the last big emerging market brewers, while Japan’s largest brewer, Kirin Holdings Co, has asked for details on the brewer, which was effectively put up for sale last month.

“There are three groups looking at FEMSA. SABMiller and Heineken are in deep discussions, while Kirin has shown some interest,” said one source with knowledge of the situation.

American brewer Molson Coors looked at FEMSA’s beer operations but has backed away, largely reflecting the big loss it made buying Brazilian brewer Kaiser in 2002 then selling it to FEMSA in 2006, the sources said.

In early October, FEMSA said it was in talks with several parties to explore opportunities involving its beer business, and FEMSA’s controlling family shareholders have already held talks with SABMiller, according to sources.

All parties declined comment on the matter.

FEMSA Cerveza has operations in two of the world’s six biggest beer markets, being the No 2 player in the Mexican beer market with a share of 42 percent and No 4 player in Brazil with a relatively small share of around 7 percent.

“SABMiller is clearly the front runner, but Heineken is very determined not to lose out to SABMiller as it did in 2005 with Bavaria,” said another source.

London-based SABMiller is a big emerging market player, with 90 percent of its earnings coming from these growth markets, and it showed its ability to do big share-based deals when it bought Colombia’s Bavaria in 2005 for $7.8 billion, giving the San Domingo family owners 15 percent of an enlarged group.

The so-called FEMSA families own nearly 39 percent of the FEMSA group which owns brewing, soft drinks and retailing interests and controls 75 percent of the voting share, so is key in any talks, and sources say they are looking for a stake in an enlarged group to keep an interest in the beer industry.

Amsterdam-based Heineken is very keen to do a deal and has close links with FEMSA as it has a deal to distribute its beers such as Sol and Tecate in the U.S. up to 2017, but analysts question whether it can afford a deal with its current debts and with the Heineken family still keen to stay firmly in control.

The Heinekens and their allies own 58.8 percent of Heineken Holding, which in turn owns 50 percent of Heineken, so there may be scope to cut its control at the holding level, but a deal to include the FEMSA families may be difficult.

“Heineken is very serious, driven by the fear of failure, but there is an issue with the family and how much they can be diluted,” said one industry analyst.

For SABMiller, a deal would link its other operations in Latin America with the MillerCoors joint venture it runs with Molson Coors in the U.S. and give it entry to Brazil, where the world’s biggest brewer Anheuser-Busch InBev has a 68 percent share of the world’s fourth-biggest market.

UBS analysts estimate cost savings from a SABMiller-FEMSA deal could be $372 million by the third year of a deal, while others say it would be much less for Heineken, which is a beer importer into the U.S. and a much smaller player in Latin America than SABMiller.

The main stumbling block appears to be price, with FEMSA looking for $9 billion for its beer business while the Miller Lite and Peroni brewer SABMiller and some analysts see a more realistic price around $7.5 billion.

Analysts doubt whether Kirin will mount a serious bid as it is locked in a fierce battle with Asahi Breweries for the No.1 slot in Japan’s beer market, and is in talks with Suntory Holdings to create one of the world’s largest food and beverage firms.

Kirin has been aggressive in its overseas expansion but has said its focus will be on the Asia and Oceania regions. Recently it spent $2.8 billion to take full ownership of Australia’s No.2 brewer Lion Nathan, while it sealed a $1.4 billion acquisition of a 49 percent stake in the Philippines’ San Miguel Brewery.

SABMiller and Heineken are the world’s No 2 and No 3 biggest brewers, while No 1 AB InBev would be prevented from bidding due to its links with Mexican brewer Modelo, which has a 56 percent domestic market share. AB InBev has a controlling equity stake in Modelo but not voting control.

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Friday, December 15, 4:35 am

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