Mexican conglomerate Fomento Economico Mexicano SAB is a step closer to freeing up billions in fresh cash, just when it may need the money.
The $34-billion company, known as Femsa, can now sell shares from its 20-per-cent holding in brewer Heineken NV after a lock-up on the stake expired at the end of April. Femsa acquired it five years ago in a swap for its Mexican beer business. The position has appreciated in that time to about $9 billion, as Heineken’s stock more than doubled. The stake, combined with Femsa’s existing cash, gives it more than $11 billion in ammunition for M&A.
“Femsa doesn’t like to own things that they really can’t control,” Lauren Torres, a New York-based analyst at UBS AG, said of the Heineken shares. “If they could parlay it into something that could give them another round of great returns, because they know that there’s another opportunity out there, then they’re going to do it.”
Acquisitions could shore up growth prospects that have moderated as the company’s Oxxo convenience-store business finds fewer Mexican street corners where it has yet to plant its flag. One option is to pursue a bigger slice of the fragmented Latin American pharmacy business, taking advantage of Femsa’s experience in small-format retail. Or it could add to its Coca-Cola bottling operations.
On 30 April, chief financial officer Daniel Alberto Rodriguez Cofre said in a conference call that the expiration of the lock-up was “not lost on us.” He added that the company doesn’t envision a change in the Heineken holding in the “short term”. Femsa “still has a very strong balance sheet” and doesn’t foresee needing to sell the stake.
“Having said that, obviously, we always have the responsibility to look for alternatives and benchmark those alternatives with Heineken shares,” he said.
A representative for Femsa declined to comment when reached on 11 May.
Over the past decade, Femsa’s market value has grown about ninefold, as management expanded the company’s Oxxo empire to about 13,000 locations. This year, UBS projects Oxxo’s store count will grow 9 per cent, the slowest pace in at least 15 years.
Should Femsa seek to sell its Heineken stake in pursuit of targets to help boost growth, it could probably find a buyer. With global beermakers considering consolidation, Heineken itself could be interested, to keep would-be buyers at bay, as could possible suitors of the Amsterdam-based brewer. Last year, Heineken rebuffed an approach by bigger brewer SABMiller Plc.
News by Bloomberg, edited by ESM
