Heineken buys FEMSA Cerveza in an all-share deal
The deal will make Heineken the number two brewer world-wide by revenue (EUR 16.7 billion) and number three brewer by volume (203 million hl). Moreover, it will reduce its profit dependency on Western Europe to 35 percent (EBIT beia) from 41 percent and give it a more balanced portfolio of developed (60 percent EBIT) and emerging markets (40 percent EBIT).
In a conference call on 11 January 2010 Heineken said it will pay EUR 5.25 billion or 11.2 times EBITDA for FEMSA Cerveza in shares. FEMSA Cerveza’s 2008 revenue was EUR 2.6 billion and its EBITDA stood at EUR 483 million. FEMSA Cerveza sold 41 million hl beer: 3 million hl in the U.S., 27 million hl in Mexico, 10 million hl in Brazil and 0.4 million hl in the rest of the world.
Heineken will issue 86 million new shares valued at EUR 2.83 billion to FEMSA on closing, an additional 29 million shares valued at EUR 961 million within five years and assume EUR 1.5 billion in debt including pensions (EUR 200 million). The transaction gives FEMSA, in which powerful Mexican families have a 39 percent stake, a 20 percent economic interest in the Heineken Group. To make the deal possible, the Heineken family agreed to reduce its stake in Heineken to 50.005 percent.
Heineken’s ratio of net debt to earnings before interest, taxes, depreciation and amortization will be largely unchanged at 3.1 times, the Dutch company said, but the brewer also said it hopes to bring the net debt ratio down to 2.5 times EBITDA before long.
FEMSA will be able to appoint two members to Heineken’s supervisory board.
In addition, the Mexicans committed themselves not to increase their ownership in the Heineken Group above 20 percent.
SABMiller pulled out of the bidding for FEMSA Cerveza after it wasn’t prepared to match the offer by Heineken. While a stronger balance sheet and ample opportunities to slash overlapping expenses had appeared to give SABMiller an edge over its Dutch rival, company executives grew concerned with FEMSA’s dependency on Coca-Cola’s distribution network in Brazil, which they argued did not promote beer brands adequately.
Heineken will push its own brand Heineken in Mexico after the purchase and start segmenting the market more. Currently, the premium segment accounts for only 2 percent of the market, for which FEMSA and Grupo Modelo are to be blamed.
In a rare public comment on a competitor, René Hooft Graafland, CFO of Heineken, said that “it would help the (Mexican) market if the players started segmenting the market more instead of copying each other and competing very much on price.”
Referring to speculation that Grupo Modelo, the number one brewer in Mexico, will eventually be sold to AB-InBev, Heineken’s CFO added that “obviously we do not know what in the end will happen to Modelo, but I don’t think it would be a bad thing if AB-InBev took ownership of that company”.
FEMSA was started by Monterrey’s Garza family in 1890. Chief Executive Officer Jose Antonio Fernandez is married to the daughter of Eugenio Garza, a patriarch of the business who died in 2008 at the age of 84. The controlling group has increased to more than 19 families from five just a few years ago, it was reported. FEMSA’s other businesses include its soft-drink unit Coca-Cola FEMSA and Oxxo, Mexico’s largest convenience-store chain and biggest distributor of beer with more than 7,000 outlets.
