Heineken said Monday that it would buy the beer operations of Femsa, one of the biggest brewers in Mexico, in an all-share transaction that values the business at $7.6 billion. The move further consolidates the beer industry into a few global players.
The move will make Heineken a “more competitive player in Latin America, one of the world’s most profitable and fastest-growing beer markets,” the chairman and chief executive of Heineken, Jean-François van Boxmeer, said in a statement.
The deal by the Netherlands-based Heineken follows a sales process by Femsa, formally known as Fomento Económico Mexicano S.A.B., that has lasted months.
Many analysts had expected SABMiller to prevail in the race for Femsa, whose beer brands include Dos Equis and Tecate, but it dropped out in recent weeks, people briefed on the matter said Sunday.
“It’s a transformational deal for Heineken,” said Marco Gulpers, beverage analyst at ING. “We were expecting a deal north of $10 billion dollars. The way they structured it, this is creating more value.”
Heineken will issue 86 million new shares to finance the deal, the first time it has done so for a takeover since 1968. Heineken shares were up €1.31, or 3.96 percent, to €34.23 in late morning trading.
After the deal closes, Femsa is to hold 20 percent of Heineken Group – making it the one of the largest shareholders in the Dutch brewer – and have the right to appoint two nonexecutive directors. The transaction is expected be completed in the second quarter of 2010.
Femsa’s other holdings include a majority stake in the largest bottler of Coca-Cola in Latin America and in OXXO, a large convenience store chain in Latin America.
Over the last decade, companies in the beer industry have combined rapidly.
The most notable deals included the 2002 sale of Miller Brewing of the United States to South African Breweries for $3.6 billion and the 2008 acquisition of the American brewer Anheuser-Busch by InBev for $52 billion. Heineken struck a major deal in 2008 by buying Scottish & Newcastle, the largest British brewer, in a joint deal with Carlsberg valued at $15 billion.
Against the backdrop of “the reconfiguration of the global brewing landscape, scale and geographic diversification are more important than ever,” José Antonio Fernández Carbajal, chairman and chief executive of Femsa, said in a statement Monday.
Besides giving Heineken a bigger foothold in Latin America, especially the highly profitable Mexican market, the deal with Femsa also offers Heineken the 83 percent of Femsa’s Brazilian beer business that the Dutch company does not already own. The two beverage companies already share ties in other areas: Heineken distributes Dos Equis and other Femsa products in the United States.
Femsa’s share of the Mexican beer market is 43 percent, and 9 percent in Brazil.
For Femsa, merging with Heineken could help bolster its competitive position, especially as it continues to battle its larger Mexican rival, Grupo Modelo, in which AB InBev has a noncontrolling 50 percent stake. AB InBev is also strongly positioned in Brazil.
About a quarter of Femsa’s revenue in 2008 of 168 billion Mexican pesos, or about $13.3 billion, came from its beer operations. The company posted about $1.6 billion in operating profit that year.
Heineken said in its statement that it expected the transaction would provide cost savings of €150 million, or $218 million, per year, within three years.
De la Merced reported from New York. Andrew Ross Sorkin contributed reporting.