Do as bankers tell you
FEMSA, Mexico’s second-largest brewer behind Grupo Modelo, is holding merger talks with several companies. Its beer operations are officially on the table, but analysts expect all of FEMSA – which is also Mexico’s largest Coca-Cola bottler and the owner of the Oxxo convenience-store chain – could ultimately be sold as a single package. FEMSA’s current market capitalisation is USD 9.9 billion.
If FEMSA were sold lock stock and barrel, SABMiller would be the most likely buyer. SABMiller is also a Coke bottler. But more importantly, the world’s number two brewer would have the funds for a deal. Still, The Coca-Cola Company, which already has a stake in FEMSA, equally has the resources to purchase FEMSA, though it would have to decide whether it is comfortable moving beyond soft drinks into alcoholic beverages.
Heineken, which is a minority partner of FEMSA’s Kaiser brewery in Brazil, might be able to afford just the beer component of the company. However, Heineken is bogged down with debt from its acquisition of Scottish & Newcastle and the Heineken family might prove reluctant to offer shares to fund the deal.
In any case, FEMSA’s merger with a global partner could finally convince Grupo Modelo’s shareholders to drop their resistance to what many analysts expect will become inevitable – a complete sell-out to Anheuser-Busch InBev.
AB-InBev owns 50 percent of Grupo Modelo’s stock and has about 35 percent of its voting power.
Relations between the two partners have been strained for years and did not improve following the sale of Anheuser-Busch to InBev. In fact, they became really testy in the summer of 2008 when the St. Louis brewer considered buying out the other half of Grupo Modelo it did not already own as a way of making itself too expensive for InBev. But key members of Grupo Modelo’s controlling family resisted.
In October 2008, after Anheuser-Busch agreed to sell to InBev for USD 52 billion, Grupo Modelo filed for arbitration. It argued that its investment agreement prohibited the Budweiser brewer from transferring its interest in Grupo Modelo to a competitor without first giving Grupo Modelo’s controlling shareholders an opportunity to buy back the shares.
Anheuser-Busch and InBev said Grupo Modelo’s claim lacked merit and went ahead with their deal. Yet the arbitration continues. Analysts expect it to wrap up in the next couple of months.
Soon, if FEMSA finds a partner, Grupo Modelo’s reluctant shareholders will be under renewed pressure from both AB-InBev and some fellow Grupo Modelo investors to sell.
Wall Street analysts have argued for quite some time that Grupo Modelo is inefficiently managed and would benefit from an AB-InBev takeover. And it appears the pressure to do a deal is growing on both sides of the border.
With the majority of big brewers already being under the wings of one of the global giants, the focus has been on Mexico’s Grupo Modelo and FEMSA for a few years now.
Mexico is the world’s sixth-largest beer market whose beer consumption is expected to continue growing thanks to very favourable beer-drinking demographics.
Looks like the writing is on the wall for both FEMSA and Grupo Modelo.
