Investors in Mexican brewer
FEMSA (NYSE: FMX) are waiting for two big
events that could significantly affect the company's stock
price. Mexico's No. 2 beer company, whose proper name is
Fomento Economico Mexicano, is silent on one issue and vocal
on the other.
Referring Wednesday to the "prolonged weakness" of the
Mexican beer market, FEMSA warned of "even more hurdles,"
which includes the prospect of higher beer taxes next year.
Mexican Senate committees have approved taxes on beer,
tobacco and gambling in an effort to raise revenue.
But FEMSA said little about the possibility of making a
deal for its beer division. It simply repeated comments made
four weeks ago: It is talking to "several parties to explore
opportunities" involving its beer business.
Predicting a buyer
The
most likely suitorsare
SABMiller (OTC BB: SBMRY) and
Heineken (OTC BB: HINKY). SABMiller has made
some acquisitions in Latin America, and Heineken distributes
FEMSA brands, such as Tecate and Dos Equis, in the U.S.
In Mexico FEMSA ranks a solid second in a two-brewer
contest with
Grupo Modelo .
Anheuser-Busch InBev (NYSE: BUD) owns 50.2%
of Grupo Modelo, but the world's biggest brewer doesn't have
operating control.
Given Anheuser-Busch InBev's financial power, FEMSA,
especially with its beer business, could be vulnerable to
deal-making. It must contend with a weak Mexican beer market
and to the fact that it is a much smaller player in Brazil,
where
AmBev (NYSE: AMB) is the
dominant brewer.AmBev is controlled by Anheuser-Busch
InBev.
Business goes on
FEMSA's strongest sources of growth are its Oxxo chain
of convenience stores and its majority stake in
Coca-Cola FEMSA (NYSE: KOF), the largest
Coca-Cola bottler in Latin America and the second largest in
the world.
Coca-Cola (NYSE: KO) owns nearly one-third of
Coca-Cola FEMSA.
During the quarter ended Sept. 30, operating earnings for
Oxxo rose 55% above the year-ago-quarter while operating
earnings for Coca-Cola FEMSA advanced 24%. Operating earnings
for the beer division gained 19.4%. The beer business
advanced thanks to higher export sales and higher prices.
FEMSA's overall operating income grew 27.2%, and revenue rose
21.4%, compared to the third quarter of 2008.
Long-term FEMSA investors who stayed with the company
after its stock plunged last year have been rewarded with a
strong comeback. Now, they have read a lot of headlines and
heard a lot of rumors. Perhaps they can take comfort in a
proverb that applies to drinking, deal-making, and everyday
life: "There is many a slip betwixt cup and lip."
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This article was originally published as
Profit from Mexico's Brew Brouhahaon
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