Latin Finance - March/April 2012 - 53

Mexico m&a

Coke Wars
by Ivan Castaño exico’s largest Coke bottlers have started mopping up smaller rivals as they seek to consolidate their positions in a sector that is feeling both price and demand pressures. More acquisitions are on the horizon and perhaps some regional expansions as well. Timing, however, may be later rather than sooner as targets hold out for better pricing. Coca-Cola Femsa, Mexico’s largest bottler of Coca-Cola products, is likely to make more acquisitions in Mexico to consolidate its domestic lead before pursuing deals elsewhere. At the same time, recently merged archrival Arca Continental is also keen to snap up or merge with the seven independent bottlers remaining in Mexico, adding pressure on Coca-Cola Femsa to buy them or risk losing its market lead. The seven remaining bottlers are Corporación Rica, Embotelladora de Colima, Yoli de Acapulco, Bepensa, Bebidas Refrescantes de Nogales, Embotelladora del Nayar and Corporación del Fuerte.

Consolidation in Mexico’s Coca-Cola bottling sector is underway and more M&A activity, both in the domestic and regional markets, is expected.

Mexico’s Coca-Cola bottlers prepare for more link-ups Femsa shareholders, taking into account the company’s prior two acquisitions of bottlers Cimsa and Grupo Tampico. At the time, it implied a valuation of EV/Ebitda of 9.7 times, according to Santander, which calculated that Queretano would increase Coca-Cola Femsa sales by 2.5% or 3 billion pesos and add 683 million pesos to Ebitda. Recent acquisitions are expected to boost Coca-Cola Femsa’s sales 30% and generate synergies of $60 million after the integrations are completed, giving Femsa 53% of the market. Arca Continental, meanwhile, will control 31% of the market. Analysts expect this year to see a handful of deals as both Femsa and Arca Continental look to expand their networks by merging or buying the remaining bottlers. “We are definitely going to see more of these deals in Mexico in coming months,” says HSBC analyst Lauren Torres. “There are still many independently run companies willing to sell to gain scale and cut costs amid high commodity prices.”

Slumping Sales

Mexican soft drink sales are slumping on the back of an aggressive government campaign to tackle an obesity epidemic in the country. That, on top of rising commodity prices, is making consolidation a crucial strategy for Coca-Cola bottlers to cut costs and achieve economies of scale. The market’s difficulties already saw Coca-Cola Femsa buy Mexican bottlers Grupo Tampico, Cisma and Queretano for $2 billion in total. Femsa’s latest acquisition, of Grupo Fomento Queretano late last year, was valued at 6.6 billion pesos and involved Coca-Cola Femsa assuming 1.22 billion pesos of the target company’s debt and paying Queretano’s shareholders with 45.1 million in newly issued L shares at an estimated price of 119.29 pesos per share. The operation would mean a 2.3% dilution to Coca-Cola

March/April 2012

LatinFinance 53

Latin Finance - March/April 2012

Table of Contents for the Digital Edition of Latin Finance - March/April 2012