The consolidating world of beer making may get still cozier. Mexico's second-largest brewer, Fomento Economico Mexicano
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
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
A parent with deep pockets also would help FEMSA fare better in Brazil, where the market leader is AmBev
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:
More from The Motley Fool
The 4 Best Dividend Stocks in Mexico
A bank, an airport operator, a poultry conglomerate, and an independent Coca-Cola bottler count among the best Mexican dividend stocks for investors today.
This Beverage Company Must Innovate to Thrive
Operating solely in Europe presents a steep challenge for this bottling company. Innovation is the only solution.
1 Sign This Latin American Market Is Getting Dangerous
A closed-end fund suggests the Mexican market is getting too hot to handle.