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FEMSA (FMX) Completes JRD Transaction, Agrees to Buy AGV

Zacks Equity Research

Fomento Economico Mexicano, S.A.B. de C.V. FMX, alias FEMSA, finalized an agreement and acquired a minority stake in Jetro Restaurant Depot (“JRD”). On Sep 26, the company had signed a non-binding Memorandum of Understanding (“MOU”) for the deal. Apart from investment in JRD’s operating and real estate-holding entities, the deal includes the requisites for a proposed joint venture (“JV”) between FEMSA and JRD.

With the JV, the companies intend to extend JRD’s cash and carry business model to Mexico and other Latin American markets. The terms for the JV call for a 50% stake of each member. The deal also marks FEMSA’s entry in the U.S. wholesale cash and carry market.

On the same day, FEMSA’s logistics subsidiary — Solistica — made a pact to acquire AGV, which is a leader in value-added warehousing and distribution platform in Brazil. AGV has gross annual sales of nearly R$650 million. The transaction is subjected to regulatory approvals and is expected to be completed by the first quarter of 2020.

The deal represents an important step for Solistica’s Brazilian strategy, where it expects to turn into the first fully integrated Third Party Logistics (“3PL”) solution provider. This will help Solistica stand out from other key players in the market. It is already the leading provider of the Less than Truckload (“LTL”) logistics service in Brazil through acquisitions like Expresso Jundiai and Atlas.

Over the years, FEMSA has been taking prudent steps to diversify the product portfolio, while expanding in the small-box retail segment.

Last week, through its FEMSA Comercio unit, the company completed the previously signed 50-50 JV agreement with Raízen Conveniencias in Brazil. The Raízen deal marks FEMSA Comercio’s entry in Brazil’s convenience sector as a developer and operator of small-format proximity and convenience stores. The transaction will 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 operations of the fuel service station. Notably, Raízen, which is the third-largest energy company in Brazil, is a 50-50 JV between Cosan and Shell.

These transactions reflect the company’s focus on strengthening position in Brazil, Mexico and other Latin American markets.

Apart from these, the Zacks Rank #3 (Hold) company is expanding drugstore operations as it sees significant potential in the space. Additionally, FEMSA is on track to build infrastructure and integrate its four legacy drugstore operations into a single operating platform.

Notably, shares of the company have gained 5.3% in the past three months against the industry’s 0.1% decline.

 


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