Heineken, the world's third largest brewer, said on Monday the all-stock purchase of the brewing assets excluding debt -- $5.5 billion based on Friday's closing share price -- would make FEMSA Heineken's second largest shareholder with a 20 percent stake and give it a boardroom role.
Analysts said the deal was competitively priced and broadened Heineken's exposure to higher-growth markets, sending its shares sharply higher.
Chief Executive Jean-Francois van Boxmeer told Reuters the deal would raise Heineken's operating profit from faster-growing emerging markets to 40 percent from 32 percent.
It rebalances that spread between the developed and developing markets, Van Boxmeer said in a conference call.
Heineken would secure FEMSA's Dos Equis, Tecate and Sol brands, beers it already sells in the United States, and an operation with a 43 percent share of the Mexican beer market and a 9 percent share in Brazil.
The United States, Brazil and Mexico are the first, second and fourth largest beer profit pools, Heineken said.
Heineken shares, which opened lower, quickly reversed and were up 5.2 percent at 34.63 euros in Amsterdam by 1220 GMT, increasing the value of the acquisition to $5.8 billion.
The deal includes a further $2.1 billion of net debt and pension obligations.
The total value of the transaction based on Friday's closing Heineken share price -- $7.6 billion -- meant an 11.2 percent multiple of enterprise value to EBITDA (earnings before interest, tax, depreciation and amortization).
Analysts said this was broadly in line with levels of 10-11 times for Latin American beer assets.
It looks like a reasonable price ... Heineken lacked exposure to emerging markets and it is already selling the (FEMSA) beers into the United States so it protects that ... Overall it's positive, said Trevor Stirling, analyst at Bernstein Research.
STRENGTHENS FEMSA PARTNERSHIP
Heineken said it expected the transaction to close in the second quarter, provide annual cost synergies of 150 million euros ($215 million) by 2013 and to add to earnings per share within two years.
It would produce a profit after six years based on weighted average cost of capital of 12.5 percent.
FEMSA, which describes itself as Latin America's largest beverage company, sells Coca-Cola in nine countries in Latin America. It also operates OXXO, which it says is the largest convenience store chain in Latin America. With the deal, it will also be selling the Heineken brand.
It is a very good basis to build up in the future ... FEMSA has regional strengths and we will exploit them, Van Boxmeer said.
FEMSA Chief Executive Jose Antonio Fernandez said the deal would allow FEMSA shareholders to participate in value creation from Heineken's transformation of its brewing assets and allow FEMSA itself to focus attention on Coca-Cola FEMSA and OXXO.
Heineken will first issue 86 million new shares. FEMSA would keep half and exchange the rest for shares of Heineken Holding , which would retain its 50.005 stake in Heineken NV.
Heineken would give FEMSA a further 29 million shares over the next five years, although FEMSA would earn Heineken dividends for these immediately. Van Boxmeer said Heineken would seek to buy these shares back from the market.
The deal would give FEMSA a 12.5 percent stake in Heineken NV and 14.9 percent of parent Heineken Holding.
It would have the right to appoint two non-executive members to the supervisory board of Heineken NV, one of them becoming vice chairman who would also sit on Heineken Holding's board.
Keijser Capital trader Geoffrey Leloux said many analysts would be charmed by the deal. Heineken was consolidating its position and there would be no general share issue but a direct placement with only some dilution for shareholders.
The absence of an expected general, larger share issue was pushing up the shares, Leloux said.
The deal was expected, after SABMiller Plc dropped out of the auction for the FEMSA businesses.
FEMSA had said in October it was looking at options for its beer business, which is the second-biggest in Mexico and number four in Brazil.
(Additional reporting by Gilbert Kreijger; Editing by Hans Peters, Sharon Lindores, John Stonestreet)