AMSTERDAM/BRUSSELS – Heineken NV will buy the beer business of Mexico’s FEMSA in a $5.7 billion deal that boosts the Dutch brewer’s emerging-markets presence and cements an alliance with one of Latin America’s biggest drinks firms.
Heineken, the world’s third-largest brewer, said on Monday the all-stock purchase would make FEMSA its second largest shareholder — with a 20 percent stake — and give it access to the boardroom.
The deal is competitively priced and broadens Heineken’s access to higher-growth markets, analysts said. The company’s shares rose 3 percent, sending shares sharply higher.
FEMSA shares slid 12.5 percent on disappointment over the deal price after brewer SABMiller pulled out of the auction. SAB was not interested in FEMSA’s Brazil operations, sources told Reuters.
FEMSA, which started as a brewer and ice maker in 1890, is the world’s second-biggest Coca-Cola bottler, and sells the soft drink in nine Latin American countries. Its chief, Jose Antonio Fernandez, is a Formula 1 enthusiast who doubles as a racing commentator on the ESPN cable television network.
FEMSA’s beer unit, home to Dos Equis, Tecate and Sol, gets credit for sparking industrial development in northern Mexico, where glass and steelmakers bottle and cap its brews.
The company operates OXXO, one of the fastest-growing convenience store chains in the region. It has 7,000 units in Mexico and recently expanded into Colombia.
Heineken would secure an operation with 43 percent of the Mexican beer market and a 9 percent share in Brazil. The United States is the most profitable beer market, Heineken said. Brazil is second and Mexico is fourth.
The deal includes a further $2.1 billion of net debt and pension obligations.
The total value of the transaction based on Friday’s closing Heineken share price — $7.6 billion — meant an 11.2 percent multiple of enterprise value to EBITDA (earnings before interest, tax, depreciation and amortization).
Analysts said this was broadly in line with levels of 10-11 times for Latin American beer assets.
“It looks like a reasonable price … Heineken lacked exposure to emerging markets and it is already selling the (FEMSA) beers into the United States so it protects that … Overall it’s positive,” said Trevor Stirling, analyst at Bernstein Research.
STRENGTHENS FEMSA PARTNERSHIP
Heineken said it expected the transaction to close in the second quarter, provide annual cost synergies of 150 million euros ($215 million) by 2013 and to add to earnings per share within two years.
It would produce a profit after six years based on weighted average cost of capital of 12.5 percent.
FEMSA, which describes itself as Latin America’s largest beverage company, sells Coca-Cola in nine countries in Latin America. It also operates OXXO, which it says is the largest convenience store chain in Latin America. With the deal, it will also be selling the Heineken brand.
“It is a very good basis to build up in the future … FEMSA has regional strengths and we will exploit them,” Van Boxmeer said.