* Heineken to pay Mexican drinks giant with 115 mln shares
* Deal worth $5.7 bln, plus $2.1 bln for debt, pensions
* FEMSA gets 20 pct stake in Heineken, board seats
* Deal will add to Heineken EPS in two years
* Heineken shares end up 3.26 pct; FEMSA down 13.61 pct
(Updates stock quotes, adds analyst quote, CEO comment)
By Ben Berkowitz and Philip Blenkinsop
AMSTERDAM/BRUSSELS, Jan 11 Heineken NV will buy
the beer business of Mexico's FEMSA in a $5.7 billion deal that
boosts the Dutch brewer's emerging-markets presence and cements
an alliance with one of Latin America's biggest drinks firms.
Heineken (HEIN.AS), the world's third-largest brewer, said
on Monday the all-stock purchase would make FEMSA its second
largest shareholder -- with a 20 percent stake -- and give it
access to the boardroom.
The deal is competitively priced and broadens Heineken's
access to higher-growth markets, analysts said. The company's
shares rose 3 percent.
FEMSA shares (FMSAUBD.MX) slid 13.61 percent on
disappointment over the deal price after brewer SABMiller
SAB.L pulled out of the auction. SAB was not interested in
FEMSA's Brazil operations, sources told Reuters.
FEMSA, which started as a brewer and ice maker in 1890, is
the world's second-biggest Coca-Cola (KO.N) bottler, and sells
the soft drink in nine Latin American countries. Its chief,
Jose Antonio Fernandez, is a Formula 1 enthusiast who doubles
as a racing commentator on the ESPN cable television network.
FEMSA's beer unit, home to Dos Equis, Tecate and Sol, gets
credit for sparking industrial development in northern Mexico,
where glass and steelmakers bottle and cap its brews.
The company operates OXXO, one of the fastest-growing
convenience store chains in the region. It has has 7,000 units
in Mexico and recently expanded into Colombia.
Heineken would secure an operation with 43 percent of the
Mexican beer market and a 9 percent share in Brazil. The United
States is the most profitable beer market, Heineken said.
Brazil is second and Mexico is fourth.
MODELO ARBITRATION A HINDRANCE
The new step in beer consolidation raises the stakes for
Anheuser-Busch InBev (ABI.BR), the world's biggest brewer, as
it wrangles with Mexico's No. 1 brewer Grupo Modelo
GMODELOC.MX over Modelo's future.
Modelo and AB InBev have lingered on the sidelines as they
await an arbitration panel's ruling on Anheuser-Busch's 50
percent stake in Modelo, which came under dispute once
Belgium's InBev bought Anheuser.
With FEMSA's beer operations under Heineken, it would put a
global brewing giant squarely in Modelo's home turf. Some
analysts think this could be the catalyst that could trigger a
more aggressive move of InBev in the Mexican market.
Mexico beer market "demographics are good, beer consumption
is pretty high and per caps are still growing," said a New
York-based analyst who preferred not to be named.
Heineken expects the deal to raise its operating profit
from faster-growing markets to 40 percent from 32 percent,
Chief Executive Jean-Francois van Boxmeer told Reuters.
The deal, worth $5.7 billion based on Monday's closing
share price, also includes $2.1 billion of net debt and pension
obligations. The total value -- $7.8 billion -- amounts to an
11.2 percent multiple of enterprise value to EBITDA (earnings
before interest, tax, depreciation and amortisation).
This is broadly in line with levels for Latin American beer
properties, analysts said.
"It looks like a reasonable price ... Heineken lacked
exposure to emerging markets and it is already selling the
(FEMSA) beers into the United States so it protects that," said
Bernstein Research analyst Trevor Stirling.
STRENGTHENS FEMSA PARTNERSHIP
Heineken said it expected the transaction to close in the
second quarter, provide annual savings of 150 million euros
($215 million) by 2013 and to add to earnings per share within
Heineken will issue 86 million new shares. FEMSA would keep
half and exchange the rest for shares of Heineken Holding
(HEIO.AS), which would retain its 50.005 percent stake in
Heineken would give FEMSA 29 million more shares over the
next five years, although FEMSA would earn Heineken dividends
for these immediately. Heineken would seek to buy these shares
back from the market, Van Boxmeer said.
The deal would give FEMSA 12.5 percent of Heineken NV and
14.9 percent of parent Heineken Holding.
FEMSA will have the right to appoint two non-executive
members to Heineken NV's supervisory board, one of them
becoming a vice chairman who also would sit on Heineken
FEMSA will remain listed on the Mexican stock exchange and
end 2010 with no debt, Fernandez told Reuters. The company's
free-cash flow generation will also help bring Coca-Cola
FEMSA's debt close to zero, he added.
The Mexican company was advised by Rothschild and Heineken
by Credit Suisse.
For a FACTBOX on the deal, double-click on [ID:nLDE60A0VK]
For a BREAKINGVIEWS on the deal double-click on
(Additional reporting by Gilbert Kreijger in Amsterdam, and
Cyntia Barrera Diaz in Mexico City. Editing by Robert
MacMillan, Bernard Orr)