KOF Ups Buying Spree with Queretano Bottler

Coca-Cola Femsa (KOF) has acquired the bottling operations of Grupo Fomento Queretano in a transaction worth MXP6.6bn ($479.3m), an indication of further consolidation in the Mexican bottling sector. As part of the purchase of Queretano, one of the oldest bottlers in Mexico, KOF will assume MXP1.22bn ($88.7m) of the target company’s debt and will pay Queretano shareholders with 45.1m of KOF’s newly issued L shares, at an estimated price of MXP119.29 per share for a total of roughly MXP5.38bn. The Queretano purchase also leaves KOF with a 26.1% equity stake in sugar producer Promotora Industrial Azucarera, up from the 13.2% stake it already owned. KOF officials could not immediately offer deal valuations. Queretano retained M&A advisory firm Seale & Associates, and law firm White & Case to advise on the deal, while KOF hired law firm Ritch Muller and Deloitte Galaz, Yamazaki, Ruiz Urquiza to handle the financial advisory. The operation would mean a 2.3% dilution to KOF shareholders, taking into account KOF’s prior two acquisitions this year of bottler Cimsa and Grupo Tampico, and it implies a valuation of EV/Ebitda of 9.7x, Santander says in a research note. Santander reckons that Queretano would increase KOF sales by 2.5% or MXN3bn and would add MXP683m to Ebitda, a 2.8% increase. In a separate note to investors, Moody’s indicates that it expects KOF’s credit metrics to remain robust despite this transaction, leaving it with a debt-to-Ebitda level of 1.14x. Since KOF held roughly MXP18.65bn in cash as of September 30, Moody’s expects the company to prepay an estimated MXP6.07bn in debt it has assumed from companies it has purchased this year. KOF shares closed Thursday at MXP121.84.