Heineken Stake Offers Femsa Billions for Needed Deals: Real M&A
2015-05-14 23:02:28.435 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Jonathan Levin
(Bloomberg) -- Mexican conglomerate Fomento Economico
Mexicano SAB is a step closer to freeing up billions in fresh
cash, just when it may need the money.
The $34 billion company, known as Femsa, can now sell
shares from its 20 percent holding in brewer Heineken NV after a
lockup on the stake expired at the end of April. Femsa acquired
it five years ago in a swap for its Mexican beer business. The
position has appreciated in that time to about $9 billion as
Heineken’s stock more than doubled. The stake, combined with
Femsa’s existing cash, gives it more than $11 billion in
ammunition for M&A.
“Femsa doesn’t like to own things that they really can’t
control,” Lauren Torres, a New York-based analyst at UBS AG,
said of the Heineken shares. “If they could parlay it into
something that could give them another round of great returns,
because they know that there’s another opportunity out there,
then they’re going to do it.”
Acquisitions could shore up growth prospects that have
moderated as the company’s Oxxo convenience-store business finds
fewer Mexican street corners where it has yet to plant its flag.
One option is to pursue a bigger slice of the fragmented Latin
American pharmacy business, taking advantage of Femsa’s
experience in small-format retail. Or it could add to its Coca-
Cola bottling operations.
Weighing Alternatives
Chief Financial Officer Daniel Alberto Rodriguez Cofre said
on an April 30 conference call that the expiration of the lockup
was “not lost on us.” He added the company doesn’t envision a
change in the Heineken holding in the “short term.”
Femsa “still has a very strong balance sheet” and doesn’t
foresee needing to sell the stake.
“Having said that, obviously, we always have the
responsibility to look for alternatives and benchmark those
alternatives with Heineken shares,” he said.
A representative for Femsa declined to comment when reached
on May 11.
Over the past decade, Femsa’s market value has grown about
ninefold as management expanded the company’s Oxxo empire to
about 13,000 locations. This year, UBS projects Oxxo’s store
count will grow 9 percent, the slowest pace in at least 15
years.
Should Femsa seek to sell its Heineken stake in pursuit of
targets to help boost growth, it could probably find a buyer.
With global beermakers considering consolidation, Heineken
itself could be interested, to keep would-be buyers at bay, as
could possible suitors of the Amsterdam-based brewer. Heineken
last year rebuffed an approach by bigger brewer SABMiller Plc.
Selling the stake would imply paying capital gains taxes on
the profits, and Femsa probably won’t do so before it finds
another way to deploy the proceeds, said Miguel Mayorga, an
analyst at Corporativo GBM SAB.
Drugstore Expansion
The company could pursue a Brazilian drugstore chain such
as Raia Drogasil SA, valued at $4 billion, or closely-held
Drogarias Pacheco, according to a Jan. 30 UBS research note by
analysts including Torres and Alan Alanis. It may also add to
its roughly 800 pharmacies in Mexico or explore more deals for
Coke bottling assets, UBS said. Its Coca-Cola Femsa SAB unit has
used M&A to become the world’s biggest independent bottler of
Coca-Cola Co. products.
Representatives for Raia Drogasil and Drogarias Pacheco
didn’t respond to requests for comment.
Top Player
Femsa is already among the top four players in the Mexican
pharmacy market, along with Farmacias Benavides, Farmacias del
Ahorro and Farmacias Guadalajara, and it may seek further
consolidation, according to UBS. The top four players account
for just 40 percent of the market, it said.
“Long-term growth at Femsa is going to be driven by
inorganic expansion in a significant way,” Corporativo GBM’s
Mayorga said in a telephone interview from Mexico City. “If at
some point one of the big players in Mexico were willing to
sell, I’m sure Femsa would make a serious effort” to make a
deal.
Another possibility is to extend its conquest of the Coca-
Cola bottling system, according to Mayorga. Targets in the
sector could range from closely-held bottlers to Arca
Continental SAB, the second-biggest bottler in Mexico, with a
market value of 158 billion pesos ($10.4 billion), he said.
Credit Suisse Group AG analysts led by Antonio Gonzalez
wrote in an April 30 note that Chilean bottler Embotelladora
Andina SA -- valued at 1.75 trillion Chilean pesos ($2.94
billion) -- is a “key M&A target.”
New Directions
If the conglomerate enters a completely new line of
business, it wouldn’t be the first time. The company started
primarily as a beermaker, then transformed into a retailer and
Coke bottler. It also dabbled in banking along the way. Today,
its other interests include gas stations. It has even proven
willing to explore new parts of the world, with its Coca-Cola
Femsa unit agreeing to buy a 51 percent stake in Coca-Cola
Bottlers Philippines Inc. in 2012.
Femsa has trial stores for its Oxxo format in Colombia, and
it’s currently seeking permission to sell alcohol in Texas,
according to a May 4 regulatory filing. If it gets it, Femsa
said it could invest $850 million to open 900 convenience stores
within 10 years.
“Whether it be the U.S., whether it be Colombia, whether
it be other parts of Latin America, if the economics work then
they’ll do it,” UBS’s Torres said.
For Related News and Information:
Retailer Femsa Emerges as Surprise Winner From Mexico Oil Plans
Mexico’s Femsa Jumps Most Since 2012 on Plan to Buy Gas Stations
Stories on emerging markets: NI EM <GO>
Top stories on Latin America: TOPL <GO>
Stories on emerging-market currencies: TNI EM FRX <GO>
Most-read news on Mexico: MNI MEX <GO>
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Nacha Cattan in Mexico City.
To contact the reporter on this story:
Jonathan Levin in Rio de Janeiro at +55-21-3956-2527 or
jlevin20@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-05-14 23:02:28.435 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Jonathan Levin
(Bloomberg) -- Mexican conglomerate Fomento Economico
Mexicano SAB is a step closer to freeing up billions in fresh
cash, just when it may need the money.
The $34 billion company, known as Femsa, can now sell
shares from its 20 percent holding in brewer Heineken NV after a
lockup on the stake expired at the end of April. Femsa acquired
it five years ago in a swap for its Mexican beer business. The
position has appreciated in that time to about $9 billion as
Heineken’s stock more than doubled. The stake, combined with
Femsa’s existing cash, gives it more than $11 billion in
ammunition for M&A.
“Femsa doesn’t like to own things that they really can’t
control,” Lauren Torres, a New York-based analyst at UBS AG,
said of the Heineken shares. “If they could parlay it into
something that could give them another round of great returns,
because they know that there’s another opportunity out there,
then they’re going to do it.”
Acquisitions could shore up growth prospects that have
moderated as the company’s Oxxo convenience-store business finds
fewer Mexican street corners where it has yet to plant its flag.
One option is to pursue a bigger slice of the fragmented Latin
American pharmacy business, taking advantage of Femsa’s
experience in small-format retail. Or it could add to its Coca-
Cola bottling operations.
Weighing Alternatives
Chief Financial Officer Daniel Alberto Rodriguez Cofre said
on an April 30 conference call that the expiration of the lockup
was “not lost on us.” He added the company doesn’t envision a
change in the Heineken holding in the “short term.”
Femsa “still has a very strong balance sheet” and doesn’t
foresee needing to sell the stake.
“Having said that, obviously, we always have the
responsibility to look for alternatives and benchmark those
alternatives with Heineken shares,” he said.
A representative for Femsa declined to comment when reached
on May 11.
Over the past decade, Femsa’s market value has grown about
ninefold as management expanded the company’s Oxxo empire to
about 13,000 locations. This year, UBS projects Oxxo’s store
count will grow 9 percent, the slowest pace in at least 15
years.
Should Femsa seek to sell its Heineken stake in pursuit of
targets to help boost growth, it could probably find a buyer.
With global beermakers considering consolidation, Heineken
itself could be interested, to keep would-be buyers at bay, as
could possible suitors of the Amsterdam-based brewer. Heineken
last year rebuffed an approach by bigger brewer SABMiller Plc.
Selling the stake would imply paying capital gains taxes on
the profits, and Femsa probably won’t do so before it finds
another way to deploy the proceeds, said Miguel Mayorga, an
analyst at Corporativo GBM SAB.
Drugstore Expansion
The company could pursue a Brazilian drugstore chain such
as Raia Drogasil SA, valued at $4 billion, or closely-held
Drogarias Pacheco, according to a Jan. 30 UBS research note by
analysts including Torres and Alan Alanis. It may also add to
its roughly 800 pharmacies in Mexico or explore more deals for
Coke bottling assets, UBS said. Its Coca-Cola Femsa SAB unit has
used M&A to become the world’s biggest independent bottler of
Coca-Cola Co. products.
Representatives for Raia Drogasil and Drogarias Pacheco
didn’t respond to requests for comment.
Top Player
Femsa is already among the top four players in the Mexican
pharmacy market, along with Farmacias Benavides, Farmacias del
Ahorro and Farmacias Guadalajara, and it may seek further
consolidation, according to UBS. The top four players account
for just 40 percent of the market, it said.
“Long-term growth at Femsa is going to be driven by
inorganic expansion in a significant way,” Corporativo GBM’s
Mayorga said in a telephone interview from Mexico City. “If at
some point one of the big players in Mexico were willing to
sell, I’m sure Femsa would make a serious effort” to make a
deal.
Another possibility is to extend its conquest of the Coca-
Cola bottling system, according to Mayorga. Targets in the
sector could range from closely-held bottlers to Arca
Continental SAB, the second-biggest bottler in Mexico, with a
market value of 158 billion pesos ($10.4 billion), he said.
Credit Suisse Group AG analysts led by Antonio Gonzalez
wrote in an April 30 note that Chilean bottler Embotelladora
Andina SA -- valued at 1.75 trillion Chilean pesos ($2.94
billion) -- is a “key M&A target.”
New Directions
If the conglomerate enters a completely new line of
business, it wouldn’t be the first time. The company started
primarily as a beermaker, then transformed into a retailer and
Coke bottler. It also dabbled in banking along the way. Today,
its other interests include gas stations. It has even proven
willing to explore new parts of the world, with its Coca-Cola
Femsa unit agreeing to buy a 51 percent stake in Coca-Cola
Bottlers Philippines Inc. in 2012.
Femsa has trial stores for its Oxxo format in Colombia, and
it’s currently seeking permission to sell alcohol in Texas,
according to a May 4 regulatory filing. If it gets it, Femsa
said it could invest $850 million to open 900 convenience stores
within 10 years.
“Whether it be the U.S., whether it be Colombia, whether
it be other parts of Latin America, if the economics work then
they’ll do it,” UBS’s Torres said.
For Related News and Information:
Retailer Femsa Emerges as Surprise Winner From Mexico Oil Plans
Mexico’s Femsa Jumps Most Since 2012 on Plan to Buy Gas Stations
Stories on emerging markets: NI EM <GO>
Top stories on Latin America: TOPL <GO>
Stories on emerging-market currencies: TNI EM FRX <GO>
Most-read news on Mexico: MNI MEX <GO>
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Nacha Cattan in Mexico City.
To contact the reporter on this story:
Jonathan Levin in Rio de Janeiro at +55-21-3956-2527 or
jlevin20@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman