May 24 (The following statement was released by the rating agency)
Philip Morris International's deal to buy out a minority shareholder in its Mexican
subsidiary is the sort of acquisition we expect to see repeated by other consumer goods
companies over the next few years, Fitch Ratings says.
When companies make acquisitions or set up these emerging market subsidiaries,
having significant minority shareholders made sense for several reasons. In some
cases the parent didn't have the resources to launch the business on its own, in
others it didn't want to take on the full risk and having a local partner could
provide expertise that the parent company was lacking. Other countries, such as
India and China, also didn't allow full ownership.
But as emerging market growth has accelerated and developed markets have slowed,
these subsidiaries are becoming increasingly core businesses. Their importance
will only increase further over the coming decade and companies that have the
resources are therefore likely to attempt to buy out minority shareholders
before valuations rise even higher. This will enable them to reap the full
benefit of the subsidiary's earnings without paying dividends to minority
While Philip Morris International's acquisition of the remaining 20% of Philip
Morris Mexico is the result of the minority holder triggering a put option, it
still fits this trend. Unilever's USD5.4bn offer to raise its stake in Hindustan
Unilever is another recent example. Other companies that might consider similar
deals include British American Tobacco, which has a listed subsidiary in Brazil
called Souza Cruz, Diageo, whose emerging market subsidiaries include Zacapa
and East African Breweries, and Anheuser-Busch InBev, which could increase its stake
in Brazil's AmBev.
For Philip Morris, the acquisition will not affect its rating or adjusted
leverage levels, as the exercising of the put option was already factored into
our analysis. Tobacco sales volumes are still rising in emerging markets and the
opportunity to move consumers on to more expensive brands and products means the
outlook is much stronger than for developed markets, particularly Western
Falling consumer confidence and disposable income, particularly in Spain and
Italy, hit cigarette volumes hard in 2012. The weakness means manufacturers'
ability to combat falling volumes through price increases may be deteriorating.
These and other trends were highlighted in our recent "EU Tobacco Dashboard",
available on www. Fitchratings.com.