AMSTERDAM -- Heineken NV said it will create a major new platform for growth by acquiring the beer operations of Fomento Economico Mexicano SAB de CV (FEMSA) via an all-share transaction. Heineken will acquire FEMSA Cerveza, comprising 100% of FEMSA's Mexican beer operations including its United States and other export business and the remaining 83% of FEMSA's Brazilian beer business that Heineken does not currently own.
FEMSA is the leading beverage company in Latin America. It controls a platform that comprises Coca-Cola FEMSA, the largest Coca-Cola bottler in the region; [image-nocss] FEMSA Cerveza, one of the leading brewers in Mexico, with presence in Brazil, and an important beer exporter to the United States and other countries; and Oxxo, the largest and convenience store chain in Mexico, with more than 7,300 stores.
The deal is expected to close in the second quarter of 2010 and is subject to the customary approval of the relevant regulatory authorities and the approval of the shareholders of Heineken, Heineken Holding NV and FEMSA.
The acquisition delivers strategic benefits globally and transforms Heineken's presence in the Americas. According to the company, it provides an opportunity to drive growth in three of the world's four biggest beer profit pools by accessing both value and volume growth in Mexico, the world's fourth largest beer profit pool; by strengthening Heineken's leading position in the highly profitable import and growing Hispanic segments in the United States, the world's most profitable beer market; and by providing the opportunity to build value in Brazil, the world's second largest beer profit pool.
It also offers significant scope to accelerate the growth of the Heineken brand in the premium segment in both Mexico and Brazil using FEMSA Cerveza's established route to market and strengthens Heineken's international portfolio with the addition of the Dos Equis, Tecate and Sol brands.
And it gives Heineken access to strong revenues and cashflows, consolidating its position as the world's second largest brewer by revenue; and further builds Heineken's exposure to growth from developing markets.
As a result of the transaction, FEMSA will hold a 20% economic interest in the Heineken Group with shareholdings at both Heineken and Heineken Holding. A portion of the Heineken shares allotted to FEMSA will be delivered over a period of not more than five years. FEMSA will have the right to appoint two nonexecutive representatives to the supervisory board of Heineken, one of whom will be a vice chairman of the Heineken supervisory board and will also be appointed to the board of Heineken Holding. Heineken Holding will maintain its 50.005% stake in Heineken NV.
Based upon the Heineken share price of $47.82, as at Jan. 8, 2010, the implied equity value of FEMSA Cerveza is $5.5 billion. Including net debt and pension obligations of $2.1 billion, the total implied enterprise value for FEMSA Cerveza is approximately $7.6 billion.
Annual cost synergies and savings to be achieved through operating best practices are expected to reach $217.85 million by 2013. Heineken said it also expects revenue enhancement initiatives to deliver substantial earnings improvement over a similar period and in the longer term.
The transaction is expected to be earnings per share accretive after two years and to deliver positive economic profit after six years.
The all-share nature of the deal allows Heineken to maintain a "robust" financial position, supported by "strong" cash flow generation, it said. Heineken's net debt/EBITDA (earnings before interest, taxes, depreciation and amortization) ratio as at June 30, 2009, proforma for the transaction, remains largely unchanged at 3.1 times.
Heineken Holding, the controlling shareholder of Heineken, has committed to vote in favor of the proposed transaction as has L'Arche Green NV, the controlling shareholder of Heineken Holding, at the respective shareholder meetings. In addition, the Voting Trust which controls 39% of FEMSA has entered into an undertaking to vote in favor of the deal at the FEMSA shareholder meeting.
"This is a compelling and significant development for Heineken. It transforms our future in the Americas and marks the next stage in Heineken's strong association with FEMSA. Through this deal, we become a much stronger, more competitive player in Latin America, one of the world's most profitable and fastest growing beer markets. The acquisition strengthens considerably our position within the global beer market, expands our portfolio of leading international brands and enhances our leading position in the U.S. import market. I am confident that this transaction will generate considerable future value for stakeholders in both groups," said Jean-Fran aois van Boxmeer, chairman and CEO of Heineken.
"This transaction...allows FEMSA's beer operations to become an integral part of Heineken's leading global platform," said Jose Antonio Fern andez Carbajal, chairman and CEO of FEMSA. "In the context of the reconfiguration of the global brewing landscape, scale and geographic diversification are more important than ever, and this transaction responds to that imperative. Heineken presented us with the most compelling opportunity to transform our brewing assets. It enables us to unlock the significant value that we have created during the past decade, while also allowing our shareholders, through our significant stake in Heineken, to participate in the long-term value creation we believe will come from aligning FEMSA Cerveza with Heineken. At the same time, this transaction increases FEMSA's operational and financial flexibility, allowing us to focus our attention and resources on the significant growth opportunities for Coca-Cola FEMSA and OXXO."
White Plains, N.Y.-based Heineken USA, a major beer importer, is a subsidiary of Heineken International BV, Amsterdam. Brands imported into the U.S. include Heineken Lager, Heineken Light Amstel Light, Newcastle Brown Ale and Buckler nonalcoholic brew. Heineken USA is also the exclusive USA importer for the Tecate, Tecate Light, Dos Equis, Sol, Carta Blanca and Bohemia brands from FEMSA Cerveza of Mexico.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.