Heineken NV said Monday it will buy the beer-making operations of Mexico's Femsa in an all-share deal that values the maker of Dos Equis, Tecate and Sol beers at $5.5 billion (3.8 billion euros), excluding debt.
Heineken said the buy cements its position as the world's second-largest brewer by sales, will help it grow in Mexico and Brazil, and will strengthen its position in the U.S. imported beer market.
Femsa Cerveza had sales of 2.6 billion euros ($3.8 billion) and operating profits of euro618 million in 2008, Heineken said. Including debt, the acquisition is worth $7.6 billion (5.3 billion euros).
"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," said Heineken Chief Executive Officer Jean-Francois van Boxmeer.
Shares rose 4 percent to 34.25 euros in Amsterdam.
Analyst Kris Kippers of Petercam Bank praised the move, saying it skewed the company's profile toward growth markets, which now make up 40 percent of its operations. He estimated the combined company is currently valued at 12 times its 2010 earnings, compared with an industry average of around 15 times.
The price Heineken paid for Femsa, when taking account of savings on shared costs and new sales opportunities makes it "a great acquisition for Heineken," he wrote in a note on the deal.
He added that by paying in shares Heineken had not damaged its balance sheet at a time of economic uncertainty and upgraded his rating on shares to "Buy" from "Add."
The acquisition is Heineken's second major buy in the past two years, as it bought Scottish & Newcastle operations worth euro10.2 billion in May 2008. Heineken still trails Anheuser-Busch InBev SA as the largest brewer by sales, and leads SABMiller PLC.
Many analysts had expected SABMiller to win the race to buy Femsa, though Heineken already owned 17 percent of Femsa's Brazilian operations and had a deal to distribute its brands in the U.S.
Heineken said it expects the deal to close in the second quarter, pending approval from regulators and shareholders.
Under the deal, Femsa — formally Fomento Economico Mexicano S.A.B. de CV — will take a 12.5 percent stake in Heineken NV and a 14.9 percent stake in its parent, Heineken Holding NV.
Those shares are valued at $5.5 billion, and Heineken is assuming Femsa debt and pension obligations of $2.1 billion.
Heineken's unusual holding structure allows descendants of the Heineken family to control Heineken NV, and the company said Monday they have agreed to the deal. A trust holding 39 percent of Femsa shares has also agreed, Heineken said.
Heineken forecasts cost savings from combining the companies' operations to amount to 150 million euros per year by 2013. It said the acquisition will begin adding to Heineken's per-share earnings "after two years."
Heineken was the best-selling imported beer in the U.S. for years before being surpassed by Corona Extra — owned by Femsa's larger Mexican rival Grupo Modelo — in the late 1990s.
The top two brands still account for more than 40 percent of the U.S. import market. Modelo Especial is in third place and Femsa's Tecate in fourth. Corona Light, Dos Equis and Heineken Light are also among the top 10 imported brands, according to trade magazine Beer Marketer's Insights.
In Brazil, Femsa sells Kaiser, Bavaria Clasica and Xingu in addition to brands previously mentioned, and in Mexico it also sells Carta Blanca and Indio.
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