US/MEXICO: UBS Warburg cuts rating on Femsa

The investment bank, UBS Warburg, has cut its recommendation on the Mexican soft drinks group, Coca-Cola Femsa SA, from "strong buy" to "buy". The bank expects the company's earnings will be diluted by its acquisition of the Miami-based drinks concern, Panamerican Beverages Inc. (Panamco).

January 7, 2003

The investment bank, UBS Warburg, has cut its recommendation on the Mexican soft drinks group, Coca-Cola Femsa SA, from “strong buy” to “buy”. The bank expects the company’s earnings will be diluted by its acquisition of the Miami-based drinks concern, Panamerican Beverages Inc. (Panamco).

Late last year, the Mexican company announced that it would acquire Panamco for $2.72 billion, also taking on $880m in debt. The deal would create the world’s second-largest bottler of Coke brands. While Femsa has said it expects the deal to be completed during the next few months, analysts at UBS Warburg believe the deal could take six months or more to wrap up and also believes Femsa “overpaid slightly” for Panamco.

“If completed, the proposed transaction should be earnings dilutive at least through 2004,” UBS Warburg said. “We continue to be positive on the company’s long term outlook, but remain somewhat cautious over the next 12 months (and would therefore advocate buying on weakness for the long term.).” The bank has also lowered its 12-month price target for Femsa from $33 to $24 per share.