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KOF Seals $1.9B Spaipa Deal

Zacks Equity Research

Mexican bottler Coca-Cola FEMSA S.A.B. de C.V. (KOF), has completed the acquisition of the second-largest privately-owned bottler in the Brazilian Coca-Cola system, Spaipa S.A. Industria Brasileira de Bebidas (Spaipa). The $1.9 billion takeover will augment its Brazilian business volume by 40%.

Coca-Cola FEMSA is co-owned by the Coca Cola Company (KO) and Fomento Economico Mexicano S.A. (FMX) also known as FEMSA. It produces and distributes Coca-Cola, Fanta, Sprite, Del Valle and other trademark beverages of The Coca-Cola Company. It also distributes bottled water, juices, teas, isotonics, beer and other beverages in Mexico, Guatemala, Nicaragua, Costa Rica, Panama, Colombia, Venezuela, Brazil, Argentina and Philippines.

The all-cash deal, financed with new bank debt, will be geographically beneficial as it will link KOF’s distribution territories in the states of São Paulo and Mato Grosso do Sul.

Spaipa has operations in the states of São Pauloand Parana, with four bottling plants, seven distribution centers and more than 6,000 employees serving almost 17 million consumers.

The acquisition is expected to accrue $33 million as earnings before interests, taxes, depreciation and amortization (:EBITDA) in the coming 18 to 24 months to KOF. The deal will allow it to serve a 66 million strong customer base and also increase its participation in Leo Alimentos athletic event to 20%.

Coca Cola Femsa, which carriesa Zacks Rank #4 (Sell) is on an acquisition spree and has been acquiring Coke bottlers in the Latin American region for the last two years. In January, the cola giant entered into a definitive agreement to acquire Mexico-based Coca-Cola bottler Grupo Yoli, S.A. de C.V. for $700 million.

Again, in August, it acquired its Brazilian peer – Companhia Fluminense de Refrigerantes – for $448 million in an all-cash transaction. The company is also expanding its operations beyond Latin America and acquired a 51% interest in Coca-Cola Bottlers Philippines, Inc. in 2013.

Beverage giants are fast expanding into emerging markets. Pepsico Inc. (PEP), another beverage player, traded its bottling operations in China for a position in Tingyi Holding’s beverage business.

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