FEMSA Comercio To Expand In Brazil With 50% Stake In Raizen

Fomento Económico Mexicano, S.A.B de C.V. (NYSE:FMX) , alias FEMSA, recently agreed to form a 50-50 joint venture (JV) with Raízen Conveniencias in Brazil. The deal enables FEMSA Comercio to buy a 50% stake in Raízen for R$561 million. The total enterprise value of Raízen Conveniencias is R$1,122 Million, without any debt or cash.

The deal, which is likely to close in the second half of this year, is expected to mark FEMSA Comercio’s entry in Brazil’s convenience sector. However, it is subject to customary regulatory approvals. Through this partnership, FEMSA Comercio will gain from Raízen’s knowledge and experience of operating in Brazil. Further, Raízen’s broad service station footprint in areas where penetration of convenience stores is low is likely to prove beneficial. Meanwhile, FEMSA Comercio will offer its expertise as a developer and operator of small-format proximity and convenience stores.

The transaction will also focus on increasing penetration of Select convenience stores at Raízen service stations. Also, the JV will help in developing value propositions for the OXXO brand’s stand-alone outlets. The deal is restricted to the convenience store business and does not include the fuel service station operations.

Notably, Raízen, which is the third-largest energy company in Brazil, is a 50-50 JV between Cosan and Shell (LON:RDSa). At present, Raízen operates above 6,200 Shell service stations in Brazil, out of these nearly one thousand have a Select brand convenience store. These outlets are franchised or licensed to independent operators.

FEMSA remains focused on expanding its operations in new markets and reinforcing the small-box retail segment. To this end, FEMSA’s Cadena Comercial OXXO (OXXO stores) signed a commercial pact to sell Anheuser-Busch InBev’s (NYSE:BUD) subsidiary, Grupo Modelo’s beer brands. Further, FEMSA extended the existing commercial pact with Heineken N.V. (OTC:HEINY) Mexico for another five years.

This Zacks Rank #2 (Buy) company is also expanding its drugstore operations as it sees significant potential in that space. Additionally, FEMSA is on track with its efforts to build infrastructure and integrate its four legacy drugstore operations into a single operating platform.

Despite these positives and strategic efforts, FEMSA stock has underperformed the Original post

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Written By: Zacks Investment Research