One of Mexico’s two major family-owned beer producers, long protected from foreign takeover by a vigilant controlling shareholder, may finally cede ownership to SABMiller, a U.K. based company that owns a large and diverse portfolio of brands from Europe, Asia, and Africa, according to industry insiders. If negotiations are successful, it will be the first time a foreign firm gets a taste of this lucrative segment of Mexico’s economy that has, until now, been dominated by local bottlers.
Fomento Economico Mexicano, S.A.B. de C.V., a holding company which controls the largest beer and soda producing operation in Latin America, may see its beer business acquired by a foreign bidder, as part of a larger trend of consolidation within the industry. On October 1, 2009 Femsa, as the company is known locally, filed a late-day report with the BMV, Mexico’s main stock market, disclosing that it is “engaging in conversations with various businesses, exploring opportunities involving its beer business.” Following the announcement, the company’s U.S.-traded ADR jumped by 20% from (US) $37.07 to $44.40.
Although Femsa has not named the companies involved in the talks, press sources including the Financial Times and the Wall Street Journal have cited sources close to the company stating that SABMiller and Heineken are engaged in the negotiations. Olly Wehring, an analyst for just-drinks.com, a U.K. based beverage industry market research group, said that the top candidate for a deal is “likely to be SABMiller.” He explained that “because [SABMiller] has not made any big transactions recently, they’ve got the money, and they’ve got the familiarity with the region” that would make a deal work.
Founded in 1890, Femsa emerged as one of Mexico’s major independent industrial giants, achieving success through the popularity of its Cuauhtémoc beer, named after a well-known Aztec leader, which is still sold today under the Indio label. According to Femsa’s most recent annual report, filed with the U.S. Securities and Exchange Commission, members of the Garza family, one of the company’s original founders, and several of their associates currently control just under three-quarters of Femsa’s Class B voting shares and are able to unilaterally block unsolicited takeover bids from outsiders. Until very recently, the Garza family has been unwilling to allow the company to be drawn under the umbrella a large multinational brewer. However, since Mexico is now being viewed as a primary target for multinational brewers, the time may be right for a deal.
Lauren Torres, a New York-based analyst who covers Femsa for HSBC, said “while the older generation in the family trust may have been slow to walk away, the younger generation has a different mindset.” Given the pressure for consolidation within the beer industry, even if the family had been reluctant to sell in the past, it is now likely to be willing to cash out while still the company is still doing well.
With popular beer brands like DosEquis, Sol and Tecate Femsa controls 40% of the Mexican beer market and earned a net profit of (US) $671 million in 2008, but still lags behind the industry’s giants. According to Michael Esterheld of Plunkett Research Ltd., a Houston-based market research firm that publishes the Food, Beverage, and Tobacco Industry Almanac, Femsa’s annual sales have been “smaller than a company like Anheuser-Bush Inbev’s.” For example, in 2008 Anheuser-Bush Inbev, the world’s leading beer conglomerate, reported total revenues of (US) $23 billion, almost ten times the sales generated during the year by Femsa’s beer division.
A foreign firm with experience managing a diverse, global brand portfolio could help boost Femsa’s international sales. Olly Wehring, of just-drinks.com, said “there’s loads of potential [for Femsa’s brands] in the U.S. and also in other beer markets where people are looking for something new, something different.” According to Lauren Torres, the HSBC analyst, Femsa brands like DosEquis have “not yet reached full market penetration, and are not as far-reaching as they could be.” In 2008 Femsa exported about one-tenth as much beer it sold in Mexico. Femsa’s Mexican beers, it seems, are still mostly consumed by Mexicans. After convincing the Garza family that the time is right to sell, a new owner would have the opportunity to try and convince more U.S. and global consumers that the time is right to give one of Femsa’s brands a try.
Fomento Economico Mexicano, S.A.B. de C.V., a holding company which controls the largest beer and soda producing operation in Latin America, may see its beer business acquired by a foreign bidder, as part of a larger trend of consolidation within the industry. On October 1, 2009 Femsa, as the company is known locally, filed a late-day report with the BMV, Mexico’s main stock market, disclosing that it is “engaging in conversations with various businesses, exploring opportunities involving its beer business.” Following the announcement, the company’s U.S.-traded ADR jumped by 20% from (US) $37.07 to $44.40.
Although Femsa has not named the companies involved in the talks, press sources including the Financial Times and the Wall Street Journal have cited sources close to the company stating that SABMiller and Heineken are engaged in the negotiations. Olly Wehring, an analyst for just-drinks.com, a U.K. based beverage industry market research group, said that the top candidate for a deal is “likely to be SABMiller.” He explained that “because [SABMiller] has not made any big transactions recently, they’ve got the money, and they’ve got the familiarity with the region” that would make a deal work.
Founded in 1890, Femsa emerged as one of Mexico’s major independent industrial giants, achieving success through the popularity of its Cuauhtémoc beer, named after a well-known Aztec leader, which is still sold today under the Indio label. According to Femsa’s most recent annual report, filed with the U.S. Securities and Exchange Commission, members of the Garza family, one of the company’s original founders, and several of their associates currently control just under three-quarters of Femsa’s Class B voting shares and are able to unilaterally block unsolicited takeover bids from outsiders. Until very recently, the Garza family has been unwilling to allow the company to be drawn under the umbrella a large multinational brewer. However, since Mexico is now being viewed as a primary target for multinational brewers, the time may be right for a deal.
Lauren Torres, a New York-based analyst who covers Femsa for HSBC, said “while the older generation in the family trust may have been slow to walk away, the younger generation has a different mindset.” Given the pressure for consolidation within the beer industry, even if the family had been reluctant to sell in the past, it is now likely to be willing to cash out while still the company is still doing well.
With popular beer brands like DosEquis, Sol and Tecate Femsa controls 40% of the Mexican beer market and earned a net profit of (US) $671 million in 2008, but still lags behind the industry’s giants. According to Michael Esterheld of Plunkett Research Ltd., a Houston-based market research firm that publishes the Food, Beverage, and Tobacco Industry Almanac, Femsa’s annual sales have been “smaller than a company like Anheuser-Bush Inbev’s.” For example, in 2008 Anheuser-Bush Inbev, the world’s leading beer conglomerate, reported total revenues of (US) $23 billion, almost ten times the sales generated during the year by Femsa’s beer division.
A foreign firm with experience managing a diverse, global brand portfolio could help boost Femsa’s international sales. Olly Wehring, of just-drinks.com, said “there’s loads of potential [for Femsa’s brands] in the U.S. and also in other beer markets where people are looking for something new, something different.” According to Lauren Torres, the HSBC analyst, Femsa brands like DosEquis have “not yet reached full market penetration, and are not as far-reaching as they could be.” In 2008 Femsa exported about one-tenth as much beer it sold in Mexico. Femsa’s Mexican beers, it seems, are still mostly consumed by Mexicans. After convincing the Garza family that the time is right to sell, a new owner would have the opportunity to try and convince more U.S. and global consumers that the time is right to give one of Femsa’s brands a try.
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