Bellying Up to FEMSA

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The consolidating world of beer making may get still cozier. Mexico's second-largest brewer, Fomento Economico Mexicano (NYSE: FMX), confirms it is talking to "several parties to explore opportunities" for its beer business.

The company, known as FEMSA, declined to identify suitors on Thursday. However, The Wall Street Journal, citing unidentified sources, said SABMiller (OTC BB: SBMRY), which owns the Miller brand, and Heineken (OTC BB: HINKY) appear to be prime contenders.

As The Motley Fool recently pointed out, Latin American brewers are attractive investments or potential takeover targets, thanks to their market demographics and their diversified operations. FEMSA said its beer division is the only topic of discussion with suitors.

FEMSA also owns a fast-growing chain of Mexican convenience stores, called Oxxo, and is a major player in soft drinks. FEMSA owns a majority stake in Coca-Cola FEMSA (NYSE: KOF), the second-largest Coca-Cola bottling company in the world. Coca-Cola (NYSE: KO) owns nearly one-third of Coca-Cola FEMSA, which sells beverages in nine countries.

Strategic reasons for deal-making
Although FEMSA is a strong second in the Mexican beer market, the leader Grupo Modelo has the backing of the world's biggest brewer, Anheuser-Busch InBev (NYSE: BUD). While Anheuser-Busch InBev owns 50.2% of Grupo Modelo, the Mexican company's board members retain operational control. Modelo's most famous brand is Corona.

A parent with deep pockets also would help FEMSA fare better in Brazil, where the market leader is AmBev (NYSE: ABV). The majority owner of AmBev is Anheuser-Busch InBev.

With mature markets like North America and Western Europe offering modest or flat growth prospects and with Anheuser-Busch InBev having made a major push into Latin America, other big brewers must be looking for more opportunities, too.

SABMiller, the world's second-largest brewer, has made some purchases in Latin America focusing on Colombia, Panama, Peru, and Ecuador.

Heineken, too, knows FEMSA well. Heineken's U.S. division has been distributing FEMSA brands such as Tecate and Dos Equis in the U.S. since 2005. Last year, Heineken and Carlsberg created a joint venture to buy the Scottish & Newcastle brewing company.

More deals coming
The thirst for consolidation is unmistakable, and the trend is probably unavoidable. Almost every brewer in this article is the product of a giant merger this decade or has made a big acquisition.

So, investors in independent brewers should heed the advice of The Most Interesting Man in the World, a character from a Dos Equis television commercial. Although he was talking to consumers, he could easily have been talking about mergers and acquisitions proponents when he said: "Stay thirsty, my friends."

For further Foolishness:

• Brewers tell drinkers to take a hike.
• MolsonCoors looks to make a comeback.
• Anheuser-Busch returns to America, sort of.