Heineken seals 1 billion euro share buyback as Femsa exit begins

HEINEKEN purchased 1 billion euros (S$1.42 billion) worth of its shares from Fomento Economico Mexicano SAB, after the Mexican Coca-Cola bottler and convenience store operator launched a 3.7 billion euro stock and equity-linked sale of part of its holdings in the Dutch group.

The world’s second-largest brewer said its strong balance sheet allowed it to carry out the buyback in a statement on Friday (Feb 17). The move does not change Heineken’s capital allocation principles, which prioritise investment in the organic growth and expansion of the business, said chief executive officer Dolf van den Brink.

Shares of Heineken were little changed in early trading in Amsterdam.

Femsa, as the company is known, had earlier this week announced plans to offload its stake in Heineken after a strategic review to shore up its share price. 

The buyback is part of an accelerated bookbuild offering by Femsa of 1.9 billion euros in shares in Heineken, priced at 91 euros apiece, and 1.3 billion euros in shares in Heineken Holding, sold at 75 euros each. Femsa also placed a sale of senior unsecured bonds of 500 million euros exchangeable into Heineken shares. 

The 3-year bonds were priced at an annual coupon of 2.625 per cent and a conversion premium of 27.5 per cent with the initial exchange price set at 95.625 euros.

Femsa’s overall economic interest in the Heineken Group will drop to 8.13 per cent from 14.76 per cent, the company said in a separate statement. 

The stock buyback by Heineken sends a “strong message that the board views the shares as undervalued,” Jefferies analyst Edward Mundy said in a note.

Femsa is the largest convenience retailer in Latin America and operates about 20,000 stores and more than 3,600 pharmacies across the region. The Mexican group picked up a 20 per cent stake in Heineken in 2010, but trimmed it to 14.8 per cent in a 2.5-billion euro transaction in 2017. 

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The company is now convinced that the best way to continue creating value is “through a structure that focuses solely on the businesses that are core to us,” said Femsa CEO Daniel Rodriguez Cofre. Last year Femsa struck a deal to buy Switzerland’s Valora, which operates about 2,700 cafés and convenience stores, for as much as US$1.2 billion to push into Europe. 

The share sale “dramatically changes Femsa’s investment thesis and the concept the market had formed of the company throughout the years,” Scotiabank analyst Hector Maya said in a note. The divestment could be ploughed into Femsa’s dividends, invested into its growing digital financial services businesses that are anchored to its stores or enable it to acquire a US convenience chain, Maya added. BLOOMBERG