E-Malt.com News article: Mexico: Sale of brewing division knocks down FEMSA’s shares

Fomento Economico Mexicano SAB (FEMSA), Latin America’s largest beverage company, plunged the most in more than a decade after investors expressed disappointment with the sale price of its beer unit, Bloomberg reported on January, 11.

FEMSA agreed to sell the beer division, the second-largest beer brewery in Mexico behind Corona-maker Grupo Modelo SAB, to Heineken NV in an all-stock transaction valued at 5.3 billion euros ($7.7 billion). FEMSA will receive a 20 percent stake in Heineken Group and can’t sell any of the shares for three years.

“Investors were expecting that the value of the deal would be between $7 billion to $9 billion,” said Gerardo Roman, the head of trading at Mexico City-based Actinver SA. “The transaction’s value was at the lower range of expectations and this scenario was the most pessimistic from the point of view of investors.”

FEMSA fell 8.26 pesos, or 13 percent, to 54.84 pesos in Mexico City trading at 4 p.m. That’s the biggest drop since August 1998.

The company had beer sales of about $2.88 billion in 2008, with $2.16 billion coming from the Mexican market and the rest from its Brazilian operations and exports, mostly to the U.S. The company’s worldwide sales in 2009 probably came to $15 billion, of which about $3.6 billion were derived from beer, according to JPMorgan Chase & Co. analyst Alan Alanis.

The beer unit had become FEMSA’s slowest growing business and its sales now trail both the soft-drink and convenience- store units. Coca-Cola FEMSA SAB, the soft-drink unit, made up 51 percent of sales in the third quarter followed by 28 percent from the retail unit.

FEMSA, which was founded with the start of the brewery in 1890, analyzed as many as five alternatives and the best was to exchange the beer business for the 20 percent Heineken holding, Chief Executive Officer Jose Antonio Fernandez said in an interview.

FEMSA ceded market share to its sole domestic competitor Grupo Modelo SAB in the third quarter. Grupo Modelo, which is half owned by Anheuser-Busch InBev, increased its share of the beer market to 58 percent from 56 percent a year earlier, while FEMSA said its share fell to 42 percent from 44 percent.

While FEMSA has efficient operations for producing beer, Heineken will need to make changes on brand strategy and positioning to stem the slide, Alanis said in an interview.

“They have a lot of work to do,” he said of Heineken taking over FEMSA.

Faced with a new global competitor in Mexico, Grupo Modelo plans to continue with its business and expansion plans, said Jennifer Shelley, a Grupo Modelo spokeswoman, in an e-mailed statement. The company competes with Heineken in 160 countries through exports, she said.

“At Grupo Modelo, we are used to having strong global competitors,” Shelley said in the statement.

FEMSA will concentrate on growing Coca-Cola FEMSA, the largest Coca-Cola bottler in Latin America, and its Oxxo convenience-store chain, which has 7,300 stores in Mexico and is expanding abroad for the first time in Colombia.


13 January, 2010