Bloomberg News

Coca-Cola Femsa Buys Mexico Bottler for $555 Million Stock

June 29, 2011

(Updates with closing share price in fifth paragraph.)

June 29 (Bloomberg) -- Coca-Cola Femsa SAB agreed to pay 6.55 billion pesos ($555 million) in stock for the Coke bottling operations of Grupo Tampico SA, marking the company’s first all- share transaction.

Mexico’s largest soft-drink bottler will give closely held Grupo Tampico 63.5 million newly issued Coca-Cola Femsa shares valued at 103.20 pesos each, it said yesterday in a statement. Mexico City-based Coca-Cola Femsa will also assume 2.75 million pesos in net debt. The stock fell the most in two months.

The transaction would be Coca-Cola Femsa’s largest since 2003 and follows a 27.7 billion-peso share merger of Mexico’s second- and third-largest bottlers this year to form Arca Continental SAB. Using shares instead of cash may help persuade more small bottlers to be acquired, Chief Financial Officer Hector Trevino said in a telephone interview yesterday.

“There are a lot of bottlers in Mexico and Latin America that don’t want to get out of the business,” Trevino said. “On the other hand, they are small and they see the advantages of having bigger scale and geographic diversification.”

Coca-Cola Femsa fell 93 centavos, or 0.8 percent, to 109.01 pesos at 4 p.m. New York time in Mexico City trading, the biggest decline since April 26. The shares have gained 6.7 percent this year, compared with a 27 percent advance for Monterrey, Mexico-based Arca Continental.

Grupo Tampico Outlook

Grupo Tampico expects revenue of 4.4 billion pesos and shipments of 154 million unit cases in 2011. Coca-Cola Femsa had 2010 revenue of 103 billion pesos. Tampico-based Grupo Tampico, in Tamaulipas state, will have earnings before interest, taxes, depreciation and amortization -- a measure of cash flow known as Ebitda -- of 967 million pesos in 2011.

“We believe it’s a geographical area of the country that will have important growth and we have plans to continue growing the business,” Trevino said.

The acquisition boosts Coca-Cola Femsa’s leading position in the Mexican beverage market, Chief Executive Officer Carlos Salazar said today in a conference call. Trevino told analysts the deal may close by the end of next quarter, and will require approval from Mexican regulators as well as from the board of Coca-Cola Co., which owns almost a third of Coca-Cola Femsa.

Annual synergies should reach 180 million pesos to 220 million pesos from the Grupo Tampico deal in the next 24 months, Trevino said today. He said in the interview that using cash to pay off the bottler’s debt is an option.

Accretive to Earnings

The acquisition will be accretive to earnings in a year to 18 months, said Jose Castro, chief of investor relations, in a telephone interview.

After purchasing Panamerican Beverages Inc. for $3.6 billion in 2003, Coca-Cola Femsa hadn’t struck a deal greater than $100 million in three years. Investors such as Jose Miguel Garaicochea, who helps manage about $1 billion for a Banco Santander SA unit in Mexico City, had said last month that the company should consider acquisitions.

With the creation of new shares to pay for Grupo Tampico, Fomento Economico Mexicano SAB’s ownership of Coca-Cola Femsa will drop to 51.9 percent from 53.7 percent now and Coca-Cola Co.’s ownership will decline to 30.6 percent from 31.6 percent. The amount of shares traded publicly will increase to 17.5 percent from 14.7 percent, Trevino said.

The owners of Grupo Tampico will gain a seat on Coca-Cola Femsa’s board, which will be expanded to 19 seats from 18.

Grupo Tampico became the first Coca-Cola bottler in Mexico in 1912, according to the company website. It has 25 distribution centers in six Mexican states, including Tamaulipas, San Luis Potosi and Veracruz.

--With assistance from Jose Enrique Arrioja in Mexico City. Editors: Jonathan Roeder, Ed Dufner

To contact the reporters on this story: Thomas Black in Dallas at tblack@bloomberg.net; Crayton Harrison in Mexico City at tharrison5@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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