FEMSA Comercio Seals JV with Raizen, Expands Brazil Footprint

Fomento Economico Mexicano, S.A.B. de C.V. FMX, alias FEMSA, has closed its previously agreed upon 50-50 joint venture (JV) agreement with Raízen Conveniencias in Brazil, through its FEMSA Comercio unit. The deal closed on the receipt of the necessary regulatory approvals in Brazil. Through this JV, FEMSA Comercio marked its entry in the small-box retail sector in Brazil.

On Aug 6, the company had agreed to form a 50-50 JV with Raízen in Brazil. The deal was priced at R$561 million. The total enterprise value of Raízen Conveniencias is R$1,122 million, without any debt or cash.

This partnership will help FEMSA Comercio to gain from Raízen’s knowledge and experience of operating in Brazil. Further, it will benefit from Raízen’s broad service station footprint in areas where penetration of convenience stores is low. Meanwhile, FEMSA Comercio will offer its expertise as a developer and operator of small-format proximity and convenience stores.

The collaboration will also focus on increasing penetration of Raízen’s Select brand convenience stores at its 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.

FEMSA, which carries a Zacks Rank #3 (Hold), remains focused on expanding its operations in new markets and reinforcing the small-box retail segment. In sync with this, FEMSA’s Cadena signed a non-binding Memorandum of Understanding to buy a minority stake in Jetro Restaurant Depot, a leader in the wholesale business-to-business cash and carry retail foodservice unit in the United States. The company will begin a JV with JRD to take JRD’s business model to Mexico and other Latin American markets.

Apart from these, the company is expanding its drugstore operations as it sees significant potential in the 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 strategic efforts, shares of the company have declined 9.5% in the past six months compared with the industry’s 2.3% growth.

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