Heineken Wins Hold of Latin American Beer-Lovers

Heineken NV agreed to buy the beer division of Fomento Economico Mexicano SAB, Mexico’s second- biggest brewer, in an all-stock deal valued at 5.3 billion euros ($7.7 billion) to tap faster sales growth in Latin America.

The Amsterdam-based brewer will issue new shares to give Femsa a 20 percent stake in Heineken Group, the company said in a statement on its Web site today. Heineken rose as much as 6.7 percent in Amsterdam trading, the most since Aug. 26.

The acquisition gives Heineken one of only two beer makers in Mexico, the world’s fourth-most profitable market, and reduces the company’s reliance on slower-growing European markets. Heineken, which distributes Femsa beers including Dos Equis in the U.S., expects savings of 150 million euros a year by 2013 and said it will use the acquisition to sell Femsa brands in Europe and Heineken in Latin America.

“This looks like a very clever deal from Heineken’s point of view,” said Nomura International Plc analyst Ian Shackleton. “It potentially opens the door for the whole of the Americas, a door which appeared to have closed.”

The world’s largest brewers have spent the last decade snapping up assets outside of western Europe as beer consumption in the region slowed. Anheuser-Busch InBev NV’s predecessor, Interbrew SA, bought Cia. de Bebidas das Americas in 2004 to become Latin America’s biggest beermaker. SABMiller Plc acquired Bavaria SA the following year to expand in Colombia.

The volume of Femsa beers sold by Heineken to retailers in the U.S. rose in the third quarter as the Dutch company’s total volumes in the Americas region fell 9.6 percent. The Americas generated about a fifth of Heineken’s earnings before interest and taxes last year and 11 percent of sales, compared with the 50 percent of sales coming from Western Europe.

Today’s deal values Femsa at around 12 times 2009 earnings, according to Evolution Securities Ltd. in London. That compares with the 14 times earnings Heineken and Carlsberg A/S paid for the U.K.’s Scottish & Newcastle Plc in 2008, and the 10.6 times multiple SABMiller Plc paid for Colombia’s Bavaria.

Heineken shares rose 1.77 euros, or 5.4 percent, to 34.70 euros as of 12:34 p.m. in Amsterdam, the biggest gain in the Dutch benchmark AEX Index.

Heineken beat off competition for the unit from SABMiller, which pulled out of the bidding after deciding that the unit wasn’t worth more than $7 billion, a person with knowledge of the talks said yesterday. There may be “some relief” among SABMiller shareholders that the company “has not gotten into a value-destructive bidding war,” Evolution analysts said today.

Bloomberg has contributed to the report.

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