Bloomberg News

Lala Said to Seek at Least $700 Million in Mexican Milk IPO (2)

September 23, 2013

Grupo Lala SAB, Mexico’s biggest dairy producer, is seeking to raise at least $700 million in an initial public offering this year, two people with direct knowledge of the transaction said, as sales of milk, cheese and yogurt grow twice as fast as the country’s economy.

The size and timing of the sale are subject to change based on market conditions, according to the people, who asked not to be identified because the details are confidential. JPMorgan Chase & Co. (JPM:US), Morgan Stanley (MS:US) and Banco Bilbao Vizcaya Argentaria SA (BBVA) are managing the sale, according to a preliminary prospectus filed today with the Mexican stock exchange.

Lala, led by Chairman Eduardo Tricio Haro, started six decades ago as a dairy farmers’ collective in northern Mexico and now controls more than half of Mexico’s milk market along with competitor Ganaderos Productores de Leche Pura SA, according to company and government reports. Mexico’s dairy market has grown at annual rate of 5.3 percent since 2007 to 155 billion pesos ($12.1 billion) in sales last year, according to data in the prospectus attributed to Euromonitor.

“The dairy market is an oligopoly here in Mexico,” Jorge Lagunas, who oversees about $200 million in stocks at Grupo Financiero Interacciones SA, said in a telephone interview from Mexico City. “This is going to be a very good consumer-sector option” for investors.

Lala declined to comment on the IPO filing due to legal restrictions, according to an outside spokesman who asked not to be identified per company policy.

Record Issuance

Mexico’s economy grew at a rate of 2.6 percent from 2007 through last year.

Lala joins at least five companies planning Mexican stock offerings, a pipeline that would extend this year’s record equity issuance. Airline Controladora Vuela Cia. de Aviacion SAB raised at least $346 million in an initial public offering last week.

Torreon-based Lala said it will use the proceeds in part to invest in a bigger fleet of trucks and improved capacity to distribute refrigerated foods. The company also plans to prepay debt and could pursue acquisitions in Mexico, Central America and elsewhere, according to the prospectus.

Lala already has operations in Central America and the U.S., according to its website. In 2009, it purchased Dallas-based National Dairy from Dairy Farmers of America Inc. for an undisclosed amount.

Mexicans consumed 15.1 billion liters of milk last year, compared with 10.9 billion liters produced, leaving room for Lala’s domestic output to steal share from imports, according to the prospectus.

Milk Trucks

Lala on its own has 53 percent of formally tracked milk sales, according to the prospectus, which cites data from AC Nielsen.

Tricio Haro increased his visibility earlier this year when he led a group of investors in acquiring a 20.2 percent stake in Grupo Aeromexico SAB, Mexico’s largest airline. The group bought most of it from Citigroup Inc., according to a Feb. 12 statement from the airline.

Lala has 17 production plants and 161 distribution centers, with its fleet of milk trucks serving a half-million stores and other outlets, according to data provided in the prospectus through June 30.

Sales rose 6.2 percent to 40.3 billion pesos ($3.15 billion) last year, an increase the company says was due “principally to organic growth in Mexico.”

Earnings before interest, taxes, depreciation and amortization -- a measure of profit known as Ebitda -- rose 16 percent to 4.76 billion pesos, which Lala attributed to a reduction in overhead costs. Ebitda as a percentage of revenue rose to 11.8 percent from 10.8 percent.

Such a margin is above that of at least two food distributors traded in Mexico. Gruma SAB, the world’s biggest tortilla maker, had an Ebitda margin of 8.2 percent last year. Mexico City-based Grupo Bimbo SAB, the world’s largest baker, had a margin of 9.2 percent in 2012.

To contact the reporter on this story: Jonathan Levin in Mexico City at jlevin20@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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