By Brenna Hughes Neghaiwi, Christian Plumb and Brendan O’Boyle
ZURICH/VIENNA/MEXICO CITY (Reuters) -Mexican retail giant and Coca-Cola bottler Femsa unveiled on Tuesday a 1.1 billion Swiss franc ($1.15 billion) cash takeover of Swiss kiosk operator Valora, part of the Mexican company’s plans to expand into a potentially lucrative European market.
Femsa shares fell after the announcement on concerns it may pay too much.
The takeover offer, which Valora’s board and its largest shareholder also back, is the first major acquisition outside of Latin America for Femsa, formally known as Fomento Economico Mexicano.
Femsa, whose Oxxo convenience stores are ubiquitous in Mexico, controls Coca-Cola Femsa, the world’s top Coca-Cola bottler, and is also the No. 2 shareholder in Dutch brewery Heineken.
Femsa Chief Executive Officer Daniel Rodriguez said in a Tuesday conference call that the company sees Valora as “an entrance gate to Europe.”
The Femsa offer includes plans to speed up growth in Switzerland, Germany and other European countries where Valora operates, Valora said in a statement.
That could include both organic growth and acquisitions, Rodriguez said.
“We see that there could be more acquisitions that we could implement going forward,” using the Swiss retailer as a base, he added.
Femsa, which had total sales of more than $27 billion last year, made an offer of 260.00 francs per Valora share, a 52% premium compared to the Swiss firm’s last closing price, Valora said.
Valora noted that its board recommended that shareholders accept the offer. Ernst Peter Ditsch, Valora’s largest shareholder with a nearly 17% stake, backs the deal.
Valora stock traded 50% higher at 256.50 Swiss francs per share shortly after the market opened on Tuesday and shot up 51% in late morning trading. But Femsa shares were down more than 5.4%.
MARKET REACTS
“The market is reacting negatively to the steep premium Femsa is willing to pay for Valora’s shares,” said Marco Montanez, an analyst with Mexican brokerage Vector, although he added that it could bring advantages such as operating in a political stable region, plus synergies with Heineken.
Femsa Investor Relations Director Enrique Manero called the slipping share price “a natural movement” after an announced acquisition and that over time investors will better recognize Valora’s value.
Analysts noted that the Swiss company had been seen as a possible takeover target for major Swiss grocery retailers Migros and Coop, meaning a rival bid should not be excluded.
Rodriguez ruled out raising Femsa’s offer to compete with a rival bid. Valora executives said they had not talked to any other potential bidders but would be obliged to consider counteroffers.
Femsa, which is aggressively expanding Oxxo in Brazil, had been “looking for opportunities in mature markets,” Rodriguez said on the call.
The company also looked at potential U.S. acquisitions, but those had become “very expensive” after recent deals, he said.
Femsa’s Chief Corporate Officer Francisco Camacho told Reuters Tuesday that a U.S. acquisition was hindered by high multiples and U.S. convenience stores’ ties to the gas market.
“With those multiples, value creation becomes difficult, but then it gets exacerbated when you add the high dependency on gas for the convenience business,” Camacho said.
Camacho stressed that Femsa’s European push did not reflect pessimism about Latin America or Mexico, which he described as its core market.
Camacho added that Femsa will invest $1 billion in Mexico this year to open some 800 Oxxo stores, along with pharmacies and gas stations.
Credit Suisse is advising Femsa as its offer manager, while J.P. Morgan is advising Valora.
The transaction is to be funded with Femsa’s available cash, the two companies said, nothing that the offer will need regulatory approval and could close in end-September or early October.
($1 = 0.9600 Swiss francs)
(Reporting by Brenna Hughes Neghaiwi, Christian Plumb and Brendan O’Boyle; Additional reporting by Valentine Hilaire; Editing by Arun Koyyur, Michael Shields, Jane Merriman, Paul Simao and David Gregorio)
