RPT-UPDATE 4-Mexico's FEMSA in talks over beer business deal

(Repeats to add stock symbols, paragraph 2, link to Factbox, end)

* FEMSA in exploratory talks about beer business deal

* Has approached SABMiller, Heineken, source says

* FEMSA ADRs gain nearly 17 pct on WSJ report (Adds FEMSA statement, source)

MEXICO CITY, Oct 1 (Reuters) - Mexican brewer and bottler FEMSA said on Thursday it is in talks with several companies about a possible deal involving its beer business.

A source familiar with the situation told Reuters that FEMSA (FMSAUBD.MX)(FMX.N) had talked with Britain's SABMiller Plc (SAB.L) and Heineken (HEIN.AS) from the Netherlands about a possible sale of beer operations that could be worth billions of dollars.

FEMSA confirmed being in talks "with several parties to explore opportunities involving its beer business" but added in its brief statement that "there can be no assurance that such discussions will lead to any definitive agreement."

The Wall Street Journal reported earlier that a merger of FEMSA's beer operations with those of a larger international player would be valued at as much as $9 billion.

SABMiller declined to comment on the report, and officials at Heineken were not immediately available.

A deal with FEMSA could give an international player access to one of the region's most lucrative markets and create a formidable challenge to FEMSA rival Grupo Modelo (GMODELOC.MX), maker of the Corona brand.

Morningstar analyst Ann Gilpin guessed that SABMiller would be interested in acquiring FEMSA's beer assets, especially since the British company lost its title of world's top brewer last year.

"They used to be the No. 1 brewer in the world and then when InBev bought Anheuser-Busch they were unseated. I definitely think there's some pressure on them to regain some of that scale," Gilpin said.

FEMSA is attractive since its strong position in Mexico would expand SAB's presence in Latin America, where Gilpin said the UK-based brewer is "noticeably absent".

"I definitely think FEMSA would be a very good asset for them at the right price," she said.

Amsterdam-based Heineken, the world's third-largest brewer, may still be trying to swallow last year's acquisition with Carlsberg of UK-based Scottish & Newcastle, Gilpin said.

FEMSA'S RISE

FEMSA and Grupo Modelo, partly owned by AB InBev (ABI.BR), are roughly neck and neck in control of Mexico's beer industry.

It was unclear whether FEMSA might be looking at selling part or all of its beer operation. Divesting its beer arm would leave it with the Coca-Cola FEMSA (KOF.N) (KOFL.MX) soft drink unit and the fast-expanding Oxxo convenience store chain.

"I think they are factoring in an attractive premium," said a Mexico City-based analyst, who declined to be named, of the reported $9 billion price tag.

In May, FEMSA Chief Executive Jose Antonio Fernandez said the company would not rule out acquisitions this year or next, possibly taking advantage of companies hit by the global slowdown, but he declined to elaborate.

FEMSA's New York-traded shares (FMX.N) closed up nearly 17 percent on the report. In Mexico, the stock was halted half an hour before the closing bell, with its last trades at 57.80 pesos, up 12.50 percent. The stock exchange said trading would resume once FEMSA released information.

FEMSA started as a brewer and ice maker in 1890 in the northern industrial city of Monterrey. It now has a portfolio of 35 beer brands and operates 14 production plants in Mexico and Brazil.

The company's second-quarter net earnings were flat as gains from foreign exchange declined, but strong soft drink sales and Oxxo store expansions pushed up revenue nearly 19 percent despite Mexico's worst recession in decades.

Price hikes drove a rise in quarterly beer sales, but sale volumes declined across the board.

FEMSA embarked on a $250 million cost-cutting program this year to better handle the impact of the economic slowdown.

For a Factbox on FEMSA, please click on [ID:nN01293927] (Reporting by Cyntia Barrera Diaz and Noel Randewich in Mexico City; Michele Gershberg and Martinne Geller in New York; Jessica Hall in Philadelphia; Writing by Cyntia Barrera; Editing by Leslie Gevirtz)