FEMSA Cuts Stake In Heineken: Here's What Investors Must Know

Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX) or FEMSA divested 5.24% of its total stake in the Heineken Group for roughly 2.5 billion euros. The equity offering, which is likely to be concluded on Sep 21, includes shares of Heineken N.V. (OTC:HEINY) and its holding company, Heineken Holding N.V.

Incidentally, in January 2010, FEMSA had exchanged its FEMSA Cerveza beer business for about 20% interest in the Heineken Group. Since then, the company has been gaining from its exposure in the beer space through its stake in the second largest brewer.

That said, let’s delve deeper into yesterday’s announcement and see where FEMSA is headed.

Transaction in Detail

Management at FEMSA stated that the equity sale will reduce its interest in Heineken N.V. from 12.53% to 8.63%. In Heineken Holding N.V., the company’s stake will go down to 12.26% from 14.94%. Consequently, FEMSA’s combined economic interest in the Heineken Group will be reduced to 14.76%.

Notably, the equity offering include 22,485,000 and 7,700,000 shares of Heineken N.V. and Heineken Holding N.V., respectively, representing a 3.9% and 2.7% of the issued share capital. Further, the respective gross proceeds from these businesses amounted to 1.9 billion euros and 600 million euros.

Meanwhile, L'Arche Green N.V. will buy back 2,564,102 shares of Heineken Holding N.V. in the offering, with the price of each share being decided by FEMSA. In fact, L'Arche Green is a firm through which the Heineken Family controls over Heineken Holding N.V. Therefore, this buyback highlights Heineken family’s commitment toward the company.

Where’s FEMSA Headed?

FEMSA has been optimistic about its prospects from investment in Heineken for a long time. Though this Mexico based company is lowering its stake in the world’s second largest brewer, it still remains a considerable stakeholder in Heineken. Additionally, FEMSA will continue being entitled to its current governance rights, which include a seat in the Heineken Holding N.V.’s board of directors and two seats in its supervisory board.

Thus, this transaction will enhance FEMSA’s monetary position while retaining its governance rights in Heineken. Also, it will help the company to continue leveraging the favorable taxation issued by Mexico’s government, which can be afforded by the Repatriation Decree.

Going forward, FEMSA intends to utilize the proceeds from this offering to fund its growth endeavors in Mexico. To this end, the company has been undertaking several strategic endeavors to fuel long-term growth.

While stake in Heineken exposes FEMSA to the beer industry, the company gets its exposure to the beverage industry through Coca-Cola FEMSA. Notably, Coca-Cola FEMSA operates as the world’s largest franchise bottler for The Coca-Cola Company (NYSE:KO) products.

Moreover, the company’s share in the retail space relates to the operation of various small-format store chains including OXXO, through its FEMSA Comercio subsidiary. Apart from these, FEMSA provides logistics, point-of-sale refrigeration solutions and plastics solutions to its business units and third-party clients through its FEMSA Strategic Businesses subsidiary. These growth drivers, in turn, have helped the company’s shares surge 30.6% so far this year, surpassing the industry’s 16.2% growth.

Hence, it seems that this Zacks Rank #3 (Hold) company is most likely to carry this momentum forward, even after reducing its second largest stake in Heineken Group.

Meanwhile, investors can count on alcohol-beverage big-wig, Constellation Brands, Inc. (NYSE:STZ) . The company with a robust earnings surprise history, holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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