Heineken Aims to Establish Foothold in Latin America with Coca-Cola Femsa (KOF) Acquisition
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Heineken might have its last chance to establish a foothold in Latin America with the acquisition of Coca-Cola FEMSA (NYSE: KOF), a Financial Times article reported over the weekend. Currently, the two companies are in negotiations.
Femsa's beer division, valued at about $7.5 billion, has been in talks with SABMiller as well. SABMiller has more synergies, estimated at $150 million, than Heineken does. SABMiller also has a stronger balance sheet.
Heineken is smaller than SABMiller, having a market cap if $22 billion to Miller's $44 billion. Heineken also has a net-to-EBITDA ratio of 3.5x.
Femsa is motivated into a deal by AB InBev eying the possibility of expanding an already 50% stake in Grupo Modelo. InBev acquired the stake after the $52 billion takeover of Anheuser-Busch.
An acquisition of Femsa would ass Dos Equis, Sol, and Tecate, among other brands, to the Heineken's line-up. Mexico is also the ninth largest beer market in the world.
Femsa also owns the Oxxo network of convenience stores. If Heineken of SABMiller somehow don't get Oxxo, then they could face some serious challenges in the Mexican beer market. Femsa is heavily reliant on distribution through Oxxo stores. Carlos Laboy, and analyst at Credit Suisse, said "if Heineken buy Mensa Cerveza on its own, it is going to get slaughtered in Mexico."
Heineken is not expected to bid for all of the stores or Coca-Cola Femsa, where SABMiller would be able to afford everything. Heineken could afford the deal, but would probably need to be partially funded with equity.
If Heineken weren't able to close the deal, a stronger relationship between Coke and SABMiller, and PepsiCo and AB InBev moving closer, would prove challenging to Heineken's long-term strategy.
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