SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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[ ] Definitive Proxy Statement
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PANAMERICAN BEVERAGES, INC.
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0-11.
(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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THE FOLLOWING IS A TRANSCRIPT OF A JOINT CONFERENCE CALL CONDUCTED ON
DECEMBER 23, 2002, BY PANAMERICAN BEVERAGES, INC. ("PANAMCO") AND COCA-COLA
FEMSA, S.A. DE C.V. ("COCA-COLA FEMSA"), IN CONNECTION WITH THE PROPOSED
ACQUISITION OF PANAMCO BY COCA-COLA FEMSA:
Investors and security holders are urged to read the proxy statement regarding
the business combination transaction referred to in the foregoing information,
when it becomes available, because it will contain important information. The
proxy statement will be filed with the Securities and Exchange Commission by
Panamco. Investors and security holders may obtain a free copy of the proxy
statement (when it is available) and other documents filed by Panamco with the
SEC at the SEC's website at www.sec.gov. The proxy statement (when it is
available) and these other documents may also be obtained free from Panamco by
directing a request to Laura I. Maydon (lmaydon@panamcollc.com).
CERTAIN INFORMATION CONCERNING PARTICIPANTS
Investors may obtain a detailed list of names, affiliations and interests of
Panamco's participants in the solicitation of proxies of shareholders to
approve the proposed business combination from an SEC filing under Schedule
14A to be made by Panamco prior to, or concurrently with, the filing of the
preliminary proxy statement with the SEC.
Final Transcript
CCBN StreetEvents
CCBN StreetEvents Conference Call Transcript
FMX - Coca-Cola FEMSA To Acquire Panamco
Event Date/Time: Dec. 23. 2002 / 10:30AM ET
Event Duration: N/A
CORPORATE PARTICIPANTS
JOSE ANTONIO FERNANDEZ
FMX - Chairman of the Board and CEO
HECTOR TREVINO
FMX - CFO
CARLOS SALAZAR
FMX - CEO
FREDERICO REYES
FEMSA - CFO
JOHN SANTA MARIA
FMX - Head Strategic Planning and Business Development
JOHN TANERARIA
FMX
CRAIG JUNG
PANAMCO - CEO
ANNETTE FRANQUI
PANAMCO - CFO
COMPANY REPRESENTATIVE
PRESENTATION
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
Good morning, ladies and gentlemen. This is Hector Trevino, Chief Financial
Officer of Coca-Cola FEMSA. Thank you for joining us today as we present this
very significant transaction.
Here with us is Jose Antonio Fernandez, Chairman of the Board of FEMSA and
Coca-Cola FEMSA, Carlos Salazar, Chief Executive Officer of Coca-Cola FEMSA,
Frederico Reyes, Chief Financial Officer of FEMSA, and [John Santa Maria]
[ph], Head of Strategic Planning and Business Development of Coca-Cola FEMSA.
Joining us on the phone we are pleased to have [Craig Jung] [ph], Chief
Executive Officer of PANAMCO, and [Annette Franqui] [ph], Chief Financial
Officer of PANAMCO.
We would like to go through our presentation of the transaction which you can
access [on Palo] [ph] in real-time, or download from our web site,
www.cocacola.femsa.com. As you listen to the call we encourage you to follow
the slides. And we will have a question-and-answer session at the end. The
presentation and the webcast will be accessible for future replay.
Now, I would like to turn you over to Jose Antonio Fernandez.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Good morning, ladies and gentlemen. Thanks again for joining us on such short
notice, but you will agree with me that this is truly a significant event for
our company. Yesterday at 4:00 a.m. in the morning the Boards of PANAMCO and
Coca-Cola FEMSA reached a definitive agreement for Coca-Cola FEMSA to acquire
PANAMCO.
As is customary in this kind of presentation, we recommend that you read the
cautionary statements on pages two and three. And so, please review them
carefully.
In the course of this presentation I will walk you through an overview of the
transaction, its rationale, our integration plan, the transaction structure,
the evaluation metrics we used, some financial details and finally, a
summation of what we believe this transaction represents for Coca-Cola FEMSA.
This acquisition is valued at an aggregate amount of $3.6b. This amount is
comprised of a total equity consideration of $2.7b and the assumption of
approximately $880m of existing PANAMCO net debt. The equity consideration
represents a weighted average price for PANAMCO share of $22.87. In a few
moments, I will explain what this number represents for the different classes
of PANAMCO shares.
This is one of the largest cross-border acquisitions by a Latin America
company, and it creates the second largest Coca-Cola bottler in the world. The
scale of both companies and the breadth of the operations in each of their
franchised territories will truly create an impressive enterprise. Slide six
offers some basic metrics that give us a sense of the magnitude of each
standalone company.
After the acquisition is completed the combined company will be the preeminent
bottler of Coca-Cola products in Latin America. It will have sales of
approximately $1.5b unit cases of soft drinks per year, with a vast
geographical footprint, serving more than 167m consumers. We will be present
in most of the region's major metropolitan areas, such as Mexico City, Buenos
Aires, Argentina, Caracas, Venezuela, Bogota, Columbia, and San Paolo, Brazil.
The company will sell approximately one-third of the Coca-Cola Company's
volume in Latin America. A pro forma 2001 financials show that Coca-Cola FEMSA
would have approximately $4.6b in revenues, and around a billion dollar in
EBITDA, of which approximately 70 percent would come from the Mexican
operations.
After the transaction closes FEMSA and the Coca-Cola Company will continue to
be principal shareholders of Coca-Cola FEMSA. However, I want to point-out
that once registration requirements permit our shareholder right offering will
take place to allow Coca-Cola FEMSA's public shareholders to participate by
subscribing new Coca-Cola FEMSA L shares at the same price that FEMSA and the
Coca-Cola Company are subscribing and exchanging their shares in this
transaction. This way all the shareholders will be able to take their
ownership back to pre-acquisition level. Assuming full subscription of these
rights offering the public float will return to its current level of 19
percent.
Now, let me turn to the rationale of these transactions. We are convinced that
the transaction will provide significant synergies to be realized from the
integration of Mexican operations alone, due to replication of our track
record of continuous improvements in operating performance. This will be
complemented by operational enhancements in Central America, and taking
advantage of opportunities in Brazil, Argentina, Venezuela, and Columbia.
In addition, there is clear up side potentials and a strategic value by
becoming the largest consolidator within the Coca-Cola System in Latin
America. We will enjoy considerable financial strength and increase the scale
that will result in an improved capital market profile. We will also have
remarkable flexibility and geographic scope which will allow us to compete
even better in the changing market environment.
As you can see in page 11 of our presentation, the combination is especially
attractive in Mexico where we will have a leading position in the soft drink
market. There are significant synergies to
be realized by having contiguous territories. The overlap of some structure
and an increased scale.
We plan to achieve synergies through the integration of operations in Mexico
of some manufacturing facilities, selling and distribution structures,
corporate overhead, and procurement and system in selective areas. The total
expected annual savings up to 24 months would be in the order of $70m. These
represent a conservative percentage of pro forma revenues and EBITDA, and we
are confident that it is realistic and achievable.
Now, let's take a look at the combined company. The activities of the combined
company will continue to be anchored in Mexico, complemented by operations in
Central America and opportunities in other territories. As you can see, Mexico
and Central America will represent about three-quarters of our EBITDA, over 60
percent of our consolidated revenues, and more than half of total volume.
Just to give you a sense of what it represents to become the second largest
Coca-Cola bottler in the world and the largest one outside the U.S. let me
point-out that Coca-Cola FEMSA's volume will be higher than the world's third
and fourth largest Coca-Cola bottlers combined. Please note that Coca-Cola
FEMSA will bottle approximately one out of every 10 Coca-Cola sold worldwide.
Summing up, Coca-Cola FEMSA's main [cost] transaction indicators, the general
volume will be around 1.9b unit cases per year, with revenues of approximately
$4.6b, and an EBITDA of over $1m. It will serve more than 160m consumers
through 1.4m points of sale.
Let me turn it over to Carlos, so that he can talk about the integration plan.
- --------------------------------------------------------------------------------
CARLOS SALAZAR - FMX - CEO
Good morning, everybody. Here is Carlos Lasar.
We will put together a strong, dedicated integration team made-up of
experienced executives from Coca-Cola FEMSA and PANAMCO to guide the process
of integration. Let me describe the critical factors of this integration
process.
We identified three key objectives that will warrant the successful
integration of PANAMCO and Coca-Cola FEMSA. Firstly, we must see ourselves as
one company, one company with operations in nine countries. After the
integration we should have a seamless organization with unified systems,
processes, and cultures. We will set high standards. We will be a company that
bases its operation on an efficient use of technology and human resources.
[indiscernible] and flexible. The quick replication of these practices across
our Mexican territories will be crucial to the integration processes.
Secondly, we must focus on executing the right local strategy. Rather than
pursuing and overreaching approach to all of our markets we will allow the
reality of each market to dictate the strategy and operating tactics. The
local knowledge of PANAMCO's Management will prove instrumental in this
effort.
Thirdly, we will replicate our core competencies across all markets to lever
us our size. Our approach to integration process will be functionally
oriented. It is very important. We have defined priorities and preliminary
directives to guide the integration plan. Mexico will continue to be a key
market, generating approximately 70 percent of the consolidated EBITDA. Here
we will implement, carefully tailor the strategies to address the competitive
issues. To jumpstart the rationalization initiative we will integrate the Back
Office of Coca-Cola FEMSA and PANAMCO in Mexico, and realize certain synergies
in the manufacturing and procurement functions. But most importantly, we will
transfer the expertise developed by Coca-Cola FEMSA in the sales and
distribution functions to the newly acquired territories.
In Venezuela we face a very challenging situation. With the help of the
PANAMCO Team on the ground we intend to address the case by continuing to
implement a strong counter-competitive measures, and by designing a
comprehensive commercial strategy to respond to the adverse market conditions.
With just the lessons we learned in Argentina during the [five] years will
come in very handy as we continue to navigate the situation in Venezuela.
Moving onto Brazil, our priority here is to conduct in a deep diagnosis of the
Brazilian operations. Again, with the help of the local PANAMCO personnel in
which we will continue to seek opportunities to improve the packaging
strategy, the sales and distribution structure, and the architecture of our
retailer network. Coca-Cola FEMSA will have [trend its corporate function in
order to be capable of managing and expanding international business model.
The corporate function will focus on driving the integration process, and the
overall company strategy.
Now, we move on and explain the structure of the transaction, and I will turn
it over to [indiscernible] [Devino] [ph], our Chief Financial Officer.
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
PANAMCO has different classes of shares, with different voting rights. PANAMCO
Class A shares are publicly held, non-voting shares, leased on the New York
Stock Exchange. Holders of Class A shares excluding the Coca-Cola Company will
receive a cash payment of $22 per share. These are percent of premium of 62.5
percent over the average price of which these shares have traded over the past
52 weeks.
PANAMCO Class B shares have full voting rights, and are not listed on any
Exchange. Holders of Class B shares excluding the Coca-Cola Company will
receive a cash payment of $38 per share. The shares that will be acquired at
this price represent only 5.4 percent of PANAMCO's outstanding shares. The
Coca-Cola Company will receive approximately 304m unlisted [KUF] [ph] Series B
shares in exchange for it's PANAMCO shares. Based on the average closing price
of the Coca-Cola FEMSA ADR during the prior 20 trading days these represent an
aggregate amount of approximately $674m, or $22 per PANAMCO share. FEMSA will
subscribe $260m of new Coca-Cola FEMSA Series B shares at a price of [$2.216]
per share, also based on the same average closing price of Coca-Cola FEMSA
ADRs during the prior 20 trading days.
In preparation for this acquisition Coca-Cola FEMSA has secured financing
commitments for $2.05b from JP Morgan Chase and Morgan Stanley. As we designed
the transaction and its structure it was of maximum importance to us that
Coca-Cola FEMSA's financial position remain healthy and strong. For this
purpose, we invited our rating agencies, Standard & Poor's and Moody's, to
analyze and evaluate the financial condition of the combined entity going
forward. Having completed their analysis Standard & Poor's have confirmed and
we expect Moody's to confirm their investment grade rating for our company
based on the soundness of our business model and our strong cash generating
[capacity.]
From day one it was important for us that all Coca-Cola FEMSA shareholders
should have the opportunity to participate in this transaction and to maintain
their pre-acquisition ownership level. To address this issue once the
transaction is closed and registration regulations permit, our shareholders'
rights offering will take place, in which holders of Coca-Cola FEMSA L shares
and Coca-Cola FEMSA ADRs will have the opportunity to subscribe new Coca-Cola
FEMSA L shares at the same price at which FEMSA and the Coca-Cola Company are
subscribing their shares as part of this transaction. In fact, all current
minority shareholders participate in the rights offer. The total capital
raised would be approximately $290m. And the public float will again reach 19
percent.
Now, let's take a look at the evaluation metrics that result from our
acquisition of our PANAMCO. Considering the average price per share of $22.87
that we are paying the evaluation multiples look as follows. We are paying 1.3
times revenues of the last 12 months. In terms of gross cash flow of PANAMCO,
the acquisition implies a multiple of 8.2 times trailing EBITDA. Importantly,
if we look at the price per unit case we are paying $2.89 per case.
Now, let's take a look at what Coca-Cola FEMSA's financials would look like in
pro forma statements. With our pro forma balance sheet we want to point-out
the fact that even though the company will have a significant amount of debt
on its books, we expect to be able to eliminate net debt in approximately six
years. Even as we follow an aggressive investment program.
From our pro forma 2001 income statement we want to again highlight that the
combined company will generate over $1b in cash per year. As a result, our
total debit-to-EBITDA coverage will be under three times.
The transaction will be funded with $2.05b financing commitment from JP Morgan
Chase and Morgan Stanley, which will consist of a one-year $1.55m
[indiscernible], and two $250m term loans with three and five-year maturities.
As mentioned before, FEMSA will subscribe $260m of new Coca-Cola FEMSA Series
V shares, and the Coca-Cola Company agrees to exchange all PANAMCO shares for
a total amount of $674m. The remaining $419.5m are coming from Coca-Cola
FEMSA's cash balances.
Moving onto some concluding thoughts, please let me turn it back to Jose
Antonio.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
As we have seen, this transaction really makes sense. There are many
compelling factors that support the rationale of this acquisition. Coca-Cola
FEMSA and PANAMCO have complementary strengths, and together will cover an
extensive footprint in the worldwide Coca-Cola System landscape. We will
extend Coca-Cola FEMSA's best practices and capitalize on PANAMCO's talented
operators and their great local expertise. We are not only creating the
largest Coke bottler in Latin America, we believe we can also be the best.
We also understand that this new stage in our company's history brings with it
enormous challenge and tremendous responsibility. Starting today, we will
increase our efforts and our focus to ensure a smooth integration and to set
the stage for continued growth through hard work and our permanent pursuit of
excellence.
Let me take this opportunity to reflect on the support that Coca-Cola FEMSA
has received from its principal shareholders in relation to this transaction.
When the process began there were contractual impediments that prevented us
from sharing our plans with the Coca-Cola Company. When we had our proposal in
place and had the ability to discuss it with our partner we were very happy to
see that our strategic visions were aligned, and that they saw all the
possibilities that this combination would generate for Coca-Cola FEMSA, in
particular, and for the regional Coca-Cola System in general.
For its part, FEMSA from the very beginning was instrumental in helping to
craft this strategy and the transaction proposal, maintaining the constructive
balance with the Coca-Cola Company and supporting the transaction with fresh
resources, by agreeing to subscribe $260m of fresh capital to help this
acquisition. This
transaction is obviously very relevant to FEMSA, as it continues to build its
beverage model which now will have a continental platform.
Finally, I want to stress the high degree of cooperation that the Senior
Management of PANAMCO has provided from the moment the conversation began. We
expect the process between now and the closing of the transaction to proceed
smoothly with the talented employees of both companies working in tandem.
Craig, would you like to add something.
- --------------------------------------------------------------------------------
CRAIG JUNG - PANAMCO - CEO
Thank you very much, Jose Antonio.
I would just add I genuinely believe this is a win, win, win transaction. I
think it's a win for PANAMCO's shareholders and employees who very much look
forward to being part of the Coca-Cola FEMSA family.
Secondly, I think it's a dynamic win for Coca-Cola FEMSA. I have tremendous
respect for the company, and know they will be very successful.
And finally, I think it's a great win for the Coca-Cola Company and the
Coca-Cola System across Latin America.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Thank you very much, Craig.
Thank you very much, all of you, for your attention. And we will now be happy
to take your questions.
QUESTION AND ANSWER
- --------------------------------------------------------------------------------
OPERATOR
Thank you. The question-and-answer session will begin at this time. (Caller
Instructions.)
The first question comes from Jeff Kanter with Prudential Securities. Please
state your question.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Good morning, everybody. Thanks for taking my call. Did I understand you
correctly that the Coca-Cola Company is helping to fund the acquisition by
$260m? Did I hear that correctly, or no?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
No. This is Hector Trevino. FEMSA is contributing $260m in cash, and the
Coca-Cola Company, what they are doing is exchanging all their PANAMCO shares
into Coca-Cola FEMSA shares.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Fair enough. What about changes in marketing funding agreements from the
Coca-Cola Company? Can you talk a little bit about that, how it's going to
look on a pro forma basis?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
We are basically aiming to maintain the same agreements that we have in place
as of this moment.. Nothing special has been changed for this transaction.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Fair enough. Is there - are there any breakup fees involved in this at all?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
Yes. The transaction - there are breakup fees in case the PANAMCO shareholders
would not deliver their commitments at the end of the - of a certain period.
And if Coca-Cola FEMSA were not to get the financing, or would decide not to
work it, we also have our breakup fee.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
And how big are those fees?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
It's $125m on each of the two sides.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
On both - on each of the two sides.
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
Yes.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Fair enough.
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
There are certain situations where the [build] cannot be completed and there
is no breakup fees because it's normal, you know, the normal allowance that
you would have in a transaction like this.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Okay. And is there - are there going to be any management changes, or will
there be a new management structure after the deal closes?
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Well, during the closing, from now to the closing we will manage in tandem
with our Integration Committee, that it will start dealing with every country
and talking with everybody in both parts. And after that, we will define the
total structure. But I don't see major changes in the whole structure.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Okay. So, basically, Coke, the people who are running Coke FEMSA today will be
running it once the deal closes and ...
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Well, I can tell you Carlos Salazar will continue to be the CEO of Coca-Cola
FEMSA. We have invited Craig Jung to stay as part of the Management Team.
First, for the period of the transaction, and hopefully, afterwards we will
try to convince him to stay.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Okay.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
But he - at least he will stay for a very good period of time to help us with
the integration process.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Fair enough, and just...
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Excuse me, let me just...
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Sure.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
We will analyze also PANAMCO's remarkable talent pool during the next few
months, and we are very confident that together with Coca-Cola FEMSA's
outstanding human resources we will integrate the Management Team, at least
[indiscernible] in the industry.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
And finally, you know, many of us just attended a big analyst meeting from the
Pepsi Bottling Group where we heard some pretty aggressive goals as far as
putting a lot more cold drink equipment into Mexico, et cetera. And I am just
curious, you know, the timing of this deal, is it - does it suggest more than
- - you know, is it more offensive? Or defensive when you think about your major
competitor?
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
I will ask John Santa Maria to answer this one.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Thank you very much.
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
Yes. No, this is not a defensive deal. This is something that we've been
looking at for several years now, that basically complements our strategic
vision of being an anchor bottler, of growing and complementing our
territories in Mexico, and giving us opportunities outside of Mexico. I think
we are better served as the competitor by this transaction, now that PPG is
coming into Mexico. So, you know, we will compete effectively against them,
but it's not a cause of PPG coming into Mexico.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Fair enough. And the timing, when is the deal supposed to close, if all goes
according to plan?
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
We have to go to some approximate deal for all shareholders to vote on this,
and we are expecting to close in approximately three to four months.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Okay, thank you very much. Well, congratulations.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from Jason Dahl with [Agiles] [ph] Capital. Please
state your question.
- --------------------------------------------------------------------------------
JASON DAHL - AGILES CAPITAL - ANALYST
Yes, good morning, congratulations. I was wondering if you could detail the
maintenance of certain credit ratings? If you could be more specific, is it
the current ratings that you have just reaffirmed that or is it something
lower than the current rating?
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
We have gone through this confidential process of reviewing our ratings with
the proposal structure. And both Moody's and S&P have confirmed that they will
maintain the same rating that we have, which is BBB in the case of S&P, and
BAA2 in the case of Moody's.
- --------------------------------------------------------------------------------
JASON DAHL - AGILES CAPITAL - ANALYST
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from Carlos Laboy with Bear Stearns. Please state your
question.
- --------------------------------------------------------------------------------
CARLOS LABOY - BEAR STEARNS - ANALYST
Good morning, gentlemen. Congratulations.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Hello, Carlos.
- --------------------------------------------------------------------------------
CARLOS LABOY - BEAR STEARNS - ANALYST
Hi, how is it going, Jose Antonio?
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Very good, thank you.
- --------------------------------------------------------------------------------
CARLOS LABOY - BEAR STEARNS - ANALYST
I have two questions. The first one is do you view yourselves as long-term
operators and owners of all of the PANAMCO territories? Or do you see an
opportunity here to maybe shed some of the assets, some of the territories, or
are there some that are just naturals for consolidation and evolution here
with other, with other Coke bottlers?
And my second issue relates to FEMSA itself. You've indicated in the past that
perhaps you would consider a breakup of the company if you could own lease
shareholder value after a major Coke transaction. And this is pretty much of a
- - this is about as big a Coke transaction as you can get. How does the
structure of
FEMSA and the evolution of the structure of FEMSA work into all
of this?
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Carlos, first I will give you general thoughts, and then I will ask my
colleagues to specify a little bit more. We have always seen ourselves as
ready to exchange territories if needed, or it creates value. We cannot close
to that opportunity now that we have let's say, more territories to be related
with.
So, we see ourselves as long-term operators and bottlers, yes. And in the
beverages, we don't see, we cannot guarantee that we will have the same
territories in a certain period of time. I mean we may exchange them for
something that makes more sense or creates more value for us. The first thing
that we will start doing is trying to create value in every territory where we
will be related, and then time will come, and depending on circumstances we
will do some exchanges.
I will ask Frederico to add on the second question.
- --------------------------------------------------------------------------------
FREDERICO REYES - FEMSA - CFO
This is Frederico. This first question about us staying with the present
portfolio of franchises that PANAMCO has is one that we have had a chance to
discuss it with the Coca-Cola Company. There is - we have discussed with them
that at some point in time in the near future we will be sitting down with
them to look at the map for Latin America for the system.
And we have expressed to them that we will be, if there might be some changes
of territories that make sense, strategic sense for Coca-Cola FEMSA that
definitely we will consider them always at a fair price. Specifically, one of
those, one of the points that has been most prominent in the discussions is
what might be the future of that [city.] We have stated also to the Coca-Cola
Company that after, we will be open to considering participating in what might
be a particular solution for Brazil if that is what is needed for the
Coca-Cola System.
In the meantime, we have agreed with them that we will operate Brazil, that we
will try to improve its operation, and that if we are successful we might be
in a position to be part of the, of what we are calling with them `the
Brazilian Solution.' But if at any point in time we would be open to discuss
possibilities for Brazil that might be in the best interests of the Coca-Cola
System in Latin America.
Frankly, your second question, definitely this is a very large transaction for
the, for Coca-Cola FEMSA. And we, as you correctly remind us, we have stated
in the past that if at some point in time if we see the benefit for all of the
shareholders in isolating Coca-Cola FEMSA from FEMSA then we will consider
that. But this transaction proves we still believe that FEMSA together with
the Coca-Cola Company are really providing a value for Coca-Cola FEMSA. We
still believe that both partners are definitely contributing significant
values and opportunities for the benefit of the shareholders of Coca-Cola
FEMSA.
And the other point that we need to emphasize is that, you probably know
better than me, the analysis for the possibility of the merging, or doing
jointly, beer and soft drink operations in Latin America, it's one of the
facts of life in many countries in Latin America. And definitely our
[expectation] in beer through our beer operations in Mexico is important, and
this might be another contribution that at some point in time FEMSA would
provide the Coca-Cola FEMSA. Of course, always in synch and in agreement with
the Coca-Cola Company.
But we believe that there are still some variables, structure variables that
are not yet defined, that for the moment do not recommend to us that we should
split Coca-Cola FEMSA out of the FEMSA umbrella.
- --------------------------------------------------------------------------------
CARLOS LABOY - BEAR STEARNS - ANALYST
Thank you very much.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from Chris O'Donnell with [Kaks] [ph] & Associates.
Please state your question.
- --------------------------------------------------------------------------------
CHRIS O DONNELL - KAKS AND ASSOCIATES - ANALYST
Good morning, gentlemen. I'd like to add my congratulations on this
transaction.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Thanks.
- --------------------------------------------------------------------------------
CHRIS O DONNELL - KAKS AND ASSOCIATES - ANALYST
My question has to do with the involvement of the Coca-Cola Company. You've
said in your prepared remarks that this transaction was initiated by
yourselves. When you did bring the Coca-Cola Company into the negotiations I
would like to know if you could detail the role they played?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Yes, let me try to expand on that, because [indiscernible] FEMSA. The
Coca-Cola Company had a standstill agreement signed with the shareholders of
PANAMCO. So as it was impossible for any affiliate of the Coca-Cola Company to
be participating in any process. And so, the leading role in this initiative
was taken on by FEMSA.
There was a point in the negotiations in which the [standstill] was waived by
PANAMCO, and [indiscernible] to the Coca-Cola Company. And at that time we
said we were in the position to initiate discussions with the Coca-Cola
Company. And as Jose Antonio mentioned, there were several meetings in which
we, both parties were very interested in confirming that the strategic
realignment, and addition for Latin America was there. That both parties were
sharing the same type of vision of the future for the System and for the
different countries.
We can say that the very simple way of putting it, we found ourselves sharing
basically our points of view. So there was no big and dramatic issues to -
that we had to negotiate. It was fairly simple for us because we had in the
past have had several discussions relative to our position in Mexico. And so
we kind of just extended those to being in Latin America.
- --------------------------------------------------------------------------------
CHRIS O DONNELL - KAKS AND ASSOCIATES - ANALYST
I see. And did they, in arriving at the agreed upon valuation of the various
classes of PANAMCO stock?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
No, every fact related to the offer was determined by [indiscernible], and was
initiated for the, with Board of PANAMCO. And the waiver of the standstill was
planted after we had had an agreement in terms of relative to values with
PANAMCO. So, they were not, they did not participate in those negotiations or
discussions. [Negotiations] started once the economic terms of the deal had
been ...
[Audio Gap]
- --------------------------------------------------------------------------------
CHRIS O DONNELL - KAKS AND ASSOCIATES - ANALYST
Hello.
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
....terms had been basically set, with the PANAMCO Board.
- --------------------------------------------------------------------------------
CHRIS O DONNELL - KAKS AND ASSOCIATES - ANALYST
I am sorry, my line cut-out briefly. So the valuation had been agreed upon
before Coca-Cola was informed of these negotiations? Is that correct?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Yes, that's correct. We had completed the negotiation, well, our internal
valuation and the negotiation with the PANAMCO Board relative to our economic
issues. And once we completed those then the waiver was granted, and the
Coca-Cola Company was in a position to start discussing issues with us.
- --------------------------------------------------------------------------------
CHRIS O DONNELL - KAKS AND ASSOCIATES - ANALYST
Understood. Thank you very much.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from [SG Telaprugato] [ph] with [Casa] [ph] Financial.
Please state your question.
- --------------------------------------------------------------------------------
SG TELAPRUGATO - CASA FINANCIAL - ANALYST
Yes, thank you. Can you identify what Regulatory approvals will be required?
And how comfortable you are in your ability to achieve them?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Basically, we need to go through some of the antitrust regulations in each of
the countries. And we don't foresee any major problem with that in the
[indiscernible]. At the end of the day, you know, we are not buying a
competitor, or increasing our competitive [indiscernible] territories. Buying
a totally new [indiscernible] carrier, no. We have to go through the SEC
registration for this rights offering that we have discussed. And for that we
just have to do all the registration process with the SEC. But we don't
foresee any problem in terms of regulatory approvals.
- --------------------------------------------------------------------------------
SG TELAPRUGATO - CASA FINANCIAL - ANALYST
Great, thank you.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from Brian Long with Chesapeake Partners. Please state
your question.
- --------------------------------------------------------------------------------
BRIAN LONG - CHESAPEAKE PARTNERS - ANALYST
Hi. I actually had a couple of quick ones. I was wondering if you could give
us your average interest rate assumptions on the bridge facility and the two
term loans? And I was also wondering if there are any performance conditions
that either side has to meet while the transaction is pending? And if you
could just tell us who PANAMCO's banker was on this?
Hector Trevino (?): Yes. With respect to the interest rates on this, on the
term loans that I described, they are basically around the lever plus one, and
it's a step-up rate that will end-up in the fifth year as levered plus
two-and-a-half. And for the $1.5b bridge for one year it's a lever of
one-and-a-half, what we have.
The banker for PANAMCO on the M&A side was JP Morgan.
And what was your third question?
- --------------------------------------------------------------------------------
BRIAN LONG - CHESAPEAKE PARTNERS - ANALYST
The third one was whether there are any performance conditions that either
side has to meet while this transaction is pending?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
No, we have a basic agreement of how the business is going to be conducted
from signing to the closing.
- --------------------------------------------------------------------------------
BRIAN LONG - CHESAPEAKE PARTNERS - ANALYST
Okay, but no financial hurdles that either side has to meet?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
No.
- --------------------------------------------------------------------------------
BRIAN LONG - CHESAPEAKE PARTNERS - ANALYST
Great. Thank you very much.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from [Pablo Zwanek] [ph] with JP Morgan. Please state
your question.
- --------------------------------------------------------------------------------
PABLO ZWANEK - JP MORGAN - ANALYST
Good morning, everyone. And congratulations to all of you. I just got three
quick questions.
Number one, I understand when you mentioned about the FEMSA structure, but at
the end of the day, the FEMSA economic interest in KUF will be 45.7 percent.
If you can just explain from an accounting point of view what this would mean
in terms of consolidation? Will it be proportionate consolidation, or 100
percent consolidation of the new KUF?
The second question is Coca-Cola Company [indiscernible] about a 40 percent
economic interest in the new entity and the free float will remain at 19
percent. Are there - that's for [indiscernible] at some point fell-down
somewhere, their shares of [indiscernible] on the open market.
And the third question maybe for Carlos, if Carlos, you can expand in terms of
explaining to us when you mentioned that Coca-Cola FEMSA would bring all its
distribution expertise to improve the distribution and execution of the
[indiscernible] PANAMOCO in Mexico, if you can expand on what you mean by that?
Thank you. And congratulations, again, to all of you.
- --------------------------------------------------------------------------------
CARLOS SALAZAR - FMX - CEO
Thank you, Pablo. The first question, we intend to continue consolidating 100
percent. We will continue having the majority of the voting of these entities,
or that is we will continue to be handled the same way [indiscernible].
Hector.
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
With respect to if there is any, the structure as we have it right now, Pablo,
once - assuming that all the publisher who subscribe to this rights offering
they will end up with 19 percent. Right now there is no specific compromise to
float some additional shares in the market. Although we see it's a very
important step in increasing the float. Remember we are under Mexican
regulation, shares that have limited voting rights, as is our case with the
Series L shares, they have, we have a limit of 25 percent of maximum percentage
ownership in the company. And our vision is that as soon as we have a better
sense of the - as soon as we get to a better pricing level for our shares it is
our intention to increase the float of the company. Also, as a way of reducing
our levers or our debt levels.
- --------------------------------------------------------------------------------
CARLOS SALAZAR - FMX - CEO
Okay, Pablo, let me - I am Carlos Salazar. Let me try to expand a little bit
about your question. You know that in the five years this company have been
very good core competencies in terms of
distribution. We know that it is
possible for us to get very good synergies when we organize in a different way
the [fleet], and the [trucks], and the warehouses that PANAMCO has in the
different territories with the network that we have in our distribution model.
But on the other hand, all the efficiencies that we are getting in our
[trucks] I think it is possible to translate into the efficiencies that now
PANAMCO is getting in the territories that they serve. I am seeing a lot of
synergies in this matter, and obviously, in all the price architecture that we
can define in terms of the competitive conditions that we are challenging on
having and facing in Mexico.
I think it is possible to get all of this synergies, but in terms of
distribution we are looking for a very, very good synergies when we can put
together all of this operation.
- --------------------------------------------------------------------------------
PABLO ZWANEK - JP MORGAN - ANALYST
Does this in any way change your plans at the Coca-Cola FEMSA level to
take-out [indiscernible] performance on the market and replace them with a
larger representation?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Let me ...
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Pablo, can you repeat the question please?
- --------------------------------------------------------------------------------
PABLO ZWANEK - JP MORGAN - ANALYST
Does this change in any way the plans that Coca-Cola FEMSA had to in January
withdraw the [indiscernible] from the market, and replace them with a larger
format at the same price?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
No, it doesn't.
- --------------------------------------------------------------------------------
PABLO ZWANEK - JP MORGAN - ANALYST
It doesn't, okay. And now will that be implemented in PANAMCO territories
right away, also?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
We've analyzed that opportunity, but it's going to be, you know, we have to
look at this market-by-market to see if it's applicable.
- --------------------------------------------------------------------------------
PABLO ZWANEK - JP MORGAN - ANALYST
Okay.
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
We don't - right now, also, you know, the other thing to understand Pablo is,
you know, we don't manage PANAMCO at this point in time. So, you know, until
closing, you know, all we can have is discussions with them about how we can
make our strategies dovetail. But at this point in time it is the
responsibility of the PANAMCO Management Group and Craig and his leadership in
Mexico to be able to execute the proper strategy for each market.
- --------------------------------------------------------------------------------
PABLO ZWANEK - JP MORGAN - ANALYST
Right, thank you very much. And congratulations again to everyone.
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from [Joann Park] [ph] with [Deal] [ph] Analytics.
Please state your question.
- --------------------------------------------------------------------------------
JOANN PARK - DEAL ANALYTICS - ANALYST
Hi, thanks. Most of my questions have already been answered. Can you just go
over the termination fee again? I missed that when you repeated that.
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
Sure, yes. The termination fee, it's $125m. And it works both ways.
- --------------------------------------------------------------------------------
JOANN PARK - DEAL ANALYTICS - ANALYST
125?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
125.
- --------------------------------------------------------------------------------
JOANN PARK - DEAL ANALYTICS - ANALYST
Okay, and who was the financial advisor for FEMSA?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
For Coca-Cola FEMSA it was Morgan Stanley, and Allen & Company.
- --------------------------------------------------------------------------------
JOANN PARK - DEAL ANALYTICS - ANALYST
Okay, thank you.
- --------------------------------------------------------------------------------
ANNETTE FRANQUI - PANAMCO - CFO
Hector, if I could clarify on the breakup fee, that the 125 on the side of
PANAMCO is, as you said, if [eight] shareholders do not vote positively for
the DL but only in the context of the superior proposal.
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
Yes. Okay.
- --------------------------------------------------------------------------------
JOANN PARK - DEAL ANALYTICS - ANALYST
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from Marco Vero with Deutsche Bank. Please state your
question.
- --------------------------------------------------------------------------------
MARCO VERO - DEUTSCHE BANK - ANALYST
Hi, good morning everyone. Firstly, regarding the evaluation of the deal, I
think there will be a lot of questions regarding the evaluation. And I was
wondering if you can give us a sense of how you viewed and valued the relative
worth of the different assets? For example, with most of the synergies I would
imagine coming from Mexico I'd be interested in getting a sense of the
multiples you attached to those assets? And I would also be very interested in
how you valued Venezuela at this difficult time?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Marco, we - in our analysis we clearly [visit] the Management of PANAMCO on
what -- we tried to understand exactly what was happening in each of the
territories. We made our best estimate of the -- what we can do in terms of
operating those territories. And, as you correctly point-out, the synergies
that we can derive from this.
The analysis that we did took us to the conclusion that we can expect value
for our shareholders in each of the territories, clearly because of the
different situations of the markets the timing of those returns are a bit
different. Mexico with the synergies, as you correctly pointed out,
[indiscernible] factor, return on the investment that we are doing in that
respect. But we do expect that in every single country or territory that we
analyze to have a positive return for our shareholders.
- --------------------------------------------------------------------------------
MARCO VERO - DEUTSCHE BANK - ANALYST
Okay. Since we've already talked about soft drinks, plus the year, and that
analysis, I was wondering if I could make a question to Jose Antonio? If,
indeed, this transaction builds more options for FEMSA [indiscernible] I would
expect to a full beverage model and the continental platform. Can you give me
a sense of the strategic worth of Interbrew as a partner? And these ventures
down South? [indiscernible] and what your current sense is with respect to
that?
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Marco, as you could imagine, it is very premature to see and to understand
what is going to happen there. You know there has been announced a very
important change in their management since [indiscernible] is leaving. We know
the new guy very well, John Brock. He has done business with us many, many
years ago. We know each other very well. We respect each other very well. He's
a very, very good intelligent man. And we have to wait till February 1st, when
he starts. We will have -- start meeting with him. Express each other our
feelings again, and try to build on that.
Besides that, as Frederico has mentioned, yes, there are opportunities for
beer and coke in certain parts of Latin America, and we will approach every,
every country from, and do its proper analysis of how to deal with that on a
case-by-case procedure. And, obviously, always including the Coca-Cola Company
in every analysis.
- --------------------------------------------------------------------------------
MARCO VERO - DEUTSCHE BANK - ANALYST
Would it be fair to say that the new Interbrew Management you would expect to
be a lot more constructive vis-a-vis FEMSA with respect to problems that you
may have had in the past?
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
That is, obviously, that is very obvious, yes.
- --------------------------------------------------------------------------------
MARCO VERO - DEUTSCHE BANK - ANALYST
Great, thank you.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
I don't know if there are any other comments or questions?
- --------------------------------------------------------------------------------
OPERATOR
Yes, sir. The next question comes from Robert Ford with Merrill Lynch. Please
state your question
- --------------------------------------------------------------------------------
ROBERT FORD - MERRILL LYNCH - ANALYST
Good morning, gentlemen. And again, I'd like to add my congratulations, as
well.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Thank you, Bob.
- --------------------------------------------------------------------------------
ROBERT FORD - MERRILL LYNCH - ANALYST
My first question was with respect to the similarities between PANAMCO Systems
and operating practices, specifically in Mexico, but throughout their
franchise territories. And I was interested in your thoughts on specific
opportunities with respect to synergies, and opportunities perhaps to improve
execution throughout the network?
- --------------------------------------------------------------------------------
JOHN TANERARIA - FMX
Bob, this is John [Tanerariaa.] [ph] Let me try to address the operating, the
systems piece first. I think both Coca-Cola FEMSA and PANAMCO run very similar
platforms. We both run on SAP systems. We have similar developments in terms
of backroom operations and the applications that SAP has brought to the table,
and we've both installed. I think we also run similar selling distribution
systems with bases which is pretty much common to most of Coca-Cola bottlers.
We see that there is enormous potential in terms of integrating both of these
companies, and the systems rationalization that could bring.
Secondly, in terms of just where the opportunities are on a go-forward basis,
we see that the scale that this company has on a combined basis will probably
give us a lot of opportunity in procurement of key raw materials, systems, and
obviously, just basically looking at redundancies of corporate functions.
- --------------------------------------------------------------------------------
ROBERT FORD - MERRILL LYNCH - ANALYST
Great. And then, in addition, with respect to your existing, or PANAMCO's
existing agreements with brewers throughout South America and Central America
how binding are those existing agreements?
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from David Lieberman with Tiedman Company. Please
state your question.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
A quick question. I am just trying to understand the difference. I looked on
slide 27.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Just one second, there was a pending answer for Bob Ford. Could we answer that
one first?
- --------------------------------------------------------------------------------
OPERATOR
Yes, sir. Go ahead.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Okay, hold on a second please. Craig, are you there, or [Annette?] [ph]
- --------------------------------------------------------------------------------
CRAIG JUNG - PANAMCO - CEO
Yes, Jose Antonio, I am here.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
I don't know if you could answer a little bit about those binding agreements
with other brewers that you have?
- --------------------------------------------------------------------------------
CRAIG JUNG - PANAMCO - CEO
Well, we have, we do have several legal agreements with other brewers. As an
example, as part of our acquisition of Panama with Florida Ice & Farm Company.
We also distribute beer in Venezuela, I think as everyone knows, or I am
sorry, in Brazil. And we do have a - as part of a historical agreement a
non-compete on beer in Venezuela.
We have made all of our representations. We believe in our hearts we will
absolutely honor those obligations through the transaction. I think FEMSA has
had a chance to digest those, and I believe they will honor those agreements as
appropriate, or negotiate with us parties to find mutually acceptable terms.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Okay, thank you. Bob, is that enough for you?
- --------------------------------------------------------------------------------
OPERATOR
He's back in the conference, sir. At this time, we have David Lieberman on the
line for a question.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Okay.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Hello. I was asking - I guess on the presentation, page 27, a look at interest
expense. And I see for the fiscal year 2001 pro forma you estimate it to be
241m interest expense then for the nine months. It's down to 112m, and if you
annualize that maybe it's 150m. But what's the difference, it's a difference
of about 100m in interest expense pro forma. Can you explain that?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Yes, the pro forma here, the two columns that we have there, assuming that the
transaction happened the first of January of 2001, and therefore, including the
full extent of the debt levels that we are including now. One is, clearly, for
the 12 months, and the other is for the nine months. And we are also taking into
consideration an assumed level of special financing that we are planning to take
out as part of this. So, it's difficult to understand the numbers as it is, but
it is basically the pro forma analysis of the financing that we will have
assuming that the transaction happens on first of January of 2001.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Great, but it seems like there's $100m interest expense difference between the
two columns, and I am trying to understand does that assume some pay-down of
some, I mean refinancing after the transaction? I am just trying to understand
what that difference is there?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Yes, let me get back to you on that answer later, because we need to work
through a little bit more, David, on this pro forma analysis with you.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Okay, and I guess on a different question, the term loans? What were the size
of the two term loans you expected?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
It's $250m each.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
And the rest would be a bridge facility?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Exactly, for one year.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
And the total of the three different facilities will be about $2b?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
It's $2b and $50m. $2.05b.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Okay, and the rights issue you've been speaking about that would take place
post-transaction closing?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Yes.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Do you have to wait for the SEC approval on that, on the rights issue, before
you close the transaction? Meaning SEC approval on the rights issue?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
No, the - we need to, for the rights offering we need SEC approval, and we
have to work through all the filing process. For the closing, basically, what
we need to do is go through some of these obligatory things that we have
discussed. And also, go through the process for the [eight] non-voting
shareholders of PANAMCO voting on this transaction.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Okay, so you won't wait for SEC approval on the rates issue to close?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
No.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Okay, and you said your average financing you figured would be LIBOR plus
one-and-a-half? After post-transaction on total debt?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
No, that's for the bridge financing. Then, right now, if some of the [indicated]
terms that we have, assuming that we go to the capital markets for take-out we
are speaking around 17, 17.5 percent, between seven and 10 years on U.S. bonds.
And around 10 percent in special financing that - as we are able to execute the
special bonds.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
That would replace the bridge?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Yes.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
And your average expected on the debt would be how much, would you think?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
It's around eight percent.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Okay, and it's conditioned on financing the transaction?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Excuse me?
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
The transaction is conditioned on financing?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
No, I mean if we don't get the financing we have to pay this breakup fee.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Right, understood.
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
It is not subject to our getting the financing. If, I mean it's subject to the
completion of the transaction, but if we were not to get this financing for
any reason then we have to pay this breakup fee, no, that we have discussed.
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Do you know how much...
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Thanks.
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from Andy [Shaeffer] [ph] with John A. Ludman Company.
Please state your question.
- --------------------------------------------------------------------------------
ANDY SHAEFFER - JOHN A LUDMAN - ANALYST
Hi. I had a question as to whether JP Morgan and Morgan Stanley's commitment,
whether they had any out clause in the event of war and hostilities, I mean
what's going on in the world, and their tie to the U.S. capital markets?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Could you speak-up please? We didn't hear that question.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
We didn't get it. I am sorry, we...
- --------------------------------------------------------------------------------
ANDY SHAEFFER - JOHN A LUDMAN - ANALYST
I had a question as to whether Morgan Stanley and JP Morgan had a financing
out on their end in the event that the U.S. goes to war with Iraq, or other
such hostilities during the pendency of the deal?
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
They have customary material [indiscernible] change clauses embedded in their
commitment document.
- --------------------------------------------------------------------------------
ANDY SHAEFFER - JOHN A LUDMAN - ANALYST
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from Celso Sanchez of ING. Please state your question.
- --------------------------------------------------------------------------------
CELSO SANCHEZ - ING - ANALYST
Hi, good morning. My question regards the, just a clarification actually first
of all, on the 70m, I think I heard it correctly 7-0 million of savings. Is
that, I think you said in the first year, and at the consolidated level? Or in
the Mexico territory alone?
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
Celso, this is John Santa Maria. Now, the 70m is a projected number over 24
months. You know, and the majority, the vast majority of that 70m will be
coming out of Mexico, where we have contiguous operations. But it's primarily
a Mexico driven number.
- --------------------------------------------------------------------------------
CELSO SANCHEZ - ING - ANALYST
Okay, and so theoretically the run rate then wold be 70 per year after their
second year?
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
Right.
- --------------------------------------------------------------------------------
CELSO SANCHEZ - ING - ANALYST
Okay. And then, the second question, sort of if we tack that 70 onto the
number even as of a trailing 12-months EBITDA that you expect for 2002, that I
expect at least, it seems like you're not quite going to get back to the
number that you use in your marketing handout for 2001 for PANAMCO. Do you
have a target range or margin, or anything like that, in that two-year
timeframe? Beyond just the 70 of savings that you could share with us, and
whether it's revenue driven, or anything like that?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
And so, this is Hector. We, at this moment, we are not in a position to start
providing guidance, as of two years ahead. We clearly have our internal
numbers which we prefer to start giving those guidance a little bit farther
down the road.
- --------------------------------------------------------------------------------
CELSO SANCHEZ - ING - ANALYST
Okay. I guess then a final question, just back, maybe a better way of asking it
is I can see what - that it sounds like you have some thoughts in mind about
potentially swapping territories in Brazil at some point. And certainly,
obviously, the Mexico story seems like it's pretty clear in your head. How about
the Colombian and Venezuela operations, though, which would seem to me to be the
biggest question marks? Because those strike me as not just operational issues,
but rather - and not just macro economy issues, but market, soft drink market
issues, as well, in terms of competition from other players big and small. Do
you have any thoughts you could share with us on how you sort of see that
evolving? Or do you think it really is just a matter of fixing distribution?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Celso, I think, you know, we have our point of view on that. Right now, that's
a little bit - it's too preliminary to discuss.
- --------------------------------------------------------------------------------
CELSO SANCHEZ - ING - ANALYST
Okay.
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
So, you know, I prefer to answer that later on.
- --------------------------------------------------------------------------------
CELSO SANCHEZ - ING - ANALYST
Okay.
Jose Antonio Fernandez (?): Let me just add, there are no specific discussions
or negotiations relative to those two countries with the Coca-Cola Company,
with anybody else.
- --------------------------------------------------------------------------------
CELSO SANCHEZ - ING - ANALYST
Okay.
- --------------------------------------------------------------------------------
CRAIG JUNG - PANAMCO - CEO
Yeah, Jose Antonio, this is Craig. Let me also offer, on Columbia we have seen
in the fourth quarter we have actually seen we think very encouraging
improvement against our own action plans for the marketplace. And that
includes, you know, recapturing full control of our cash operating expenses,
as well as improved volume performance. And so, we feel very comfortable about
Columbia.
I would say, you know, two additional thoughts. First, I wholeheartedly agree
with John and with Carlos, and with Jose Antonio, that our operations in
Venezuela will benefit from some of the learning that Coca-Cola FEMSA has had
in Argentina, and we look forward to integrating that learning as part of our
transition plan.
The other piece I would say is as I looked at the transaction, thought about
it from a strategic sense, you know, clearly there are distribution synergies,
and manufacturing synergies, and logistics synergies, but I also wouldn't
underestimate, and I've reinforced this with our people, Coca-Cola FEMSA are
great operators. And I think one of the real strengths is sales management and
retail sales execution. PANAMCO is also strong executionally.
You know, if there's one thing that I think it's been a bit of an issue that
has taken time is that we have had a tendency to operate country-by-country
independently. So, each country has kind of emerged their own operations and
philosophies.
And I look at this as a great opportunity, as the Coca-Cola FEMSA leadership
has articulated to create one company that operates in nine different
countries to get best practices in both, and installed in each PANAMCO
organization. And that, I believe, will have material growth impact, and
material efficiency impact. Okay.
- --------------------------------------------------------------------------------
CELSO SANCHEZ - ING - ANALYST
Okay, thank you.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Thank you, Craig.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from Jose Yordan with UBS Warburg. Please state your
question.
- --------------------------------------------------------------------------------
JOSE YORDAN - UBS WARBURG - ANALYST
Hi, good morning everybody. I just had two question, unrelated. One is I saw
in the presentation there was a $50m options exercise cost. I assume from that
line that you're going to eventually adopt the stock ownership plans of
Coca-Cola FEMSA, and that the PANAMCO stock options policies, or whatever,
will be eliminated? That's the first question.
The second question is related to the procurement of bottles? I was wondering
if PANAMCO buys bottles, glass bottles from FEMSA in Mexico at this point, or
whether there's additional opportunities for business from the FEMSA packaging
unit to the new, to the PANAMCO territories from now on?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
Jose, this is Hector. Let me answer the first question. With respect to that
line item that you saw for approximately $50m on options. This is the
computation that we have gone with our lawyers in terms of reviewing the
PANAMCO's option structure that they have at this moment, and the cost of what
this transaction implies on that option plan. I don't think it has anything to
do with the future programs for Coca-Cola FEMSA or PANAMCO plans. It is rather
the existing options that are there, valued of this transaction price, and
what the cost of that would be.
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
Jose, this is John. In terms of the bottles bought by PANAMCO from FEMSA,
really the primary source of glass returnable bottles that PANAMCO uses is
from [Vitro] [ph]. You know, and the rest of the [PET] [ph]bottles is a
different source. They use, we use [Alpa] [ph], they use a different supplier.
And the rough [PET] bottles is both, we both buy from the same source, which
is not, a non-FEMSA source.
- --------------------------------------------------------------------------------
JOSE YORDAN - UBS WARBURG - ANALYST
Right.
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
So, you know, they're - I don't know if that answers your question.
- --------------------------------------------------------------------------------
JOSE YORDAN - UBS WARBURG - ANALYST
Yes, that does. But on - just a follow-up on the option plan. I mean am I to
understand that once the deal closes that you will apply the same compensation
policies to all the new territories as you do with the current territories? Or
will everything stay the same at PANAMCO for, you know, separate policies in
different countries, or whatever? After the closing of the deal?
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
You know, I think the compensation schemes in both companies are very similar.
Obviously, you know, on a go-forward basis, what we'd have to do is basically
equate them right. We don't see a major problem in doing that in the
short-term.
- --------------------------------------------------------------------------------
JOSE YORDAN - UBS WARBURG - ANALYST
Okay, thanks.
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
You're welcome.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from John Smith with RBC. Please state your question.
- --------------------------------------------------------------------------------
JOHN SMITH - RBC - ANALYST
Is there a credit ratings test for completion in the merger agreement? Is
there an investment grade requirement? Thank you.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
We have a, before the draw-down of the bridge financing we have to maintain an
investment grade rating, that's a condition to the financing. There is no
waiting condition on the merger agreement.
- --------------------------------------------------------------------------------
JOHN SMITH - RBC - ANALYST
Okay, thank you very much.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Sure.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from Marco Vero with Deutsche Bank. Please state your
question.
- --------------------------------------------------------------------------------
MARCO VERO - DEUTSCHE BANK - ANALYST
Hi, just a follow-up on the water. PANAMCO has been recently mapping and
planning for rationalizing its water routes and assets. What's the [current]
view on this? I mean would you like to see them just seize and desist from
rationalizing any water fixed assets as their may be opportunities to use their
[indiscernible] water lines and underutilized trucks, as well, to roll-out
[indiscernible] in Mexico City, and short-term after the completion of the deal?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Marco, I think the leadership group over at PANAMCO has been doing an extremely
pointed job and a correct job in terms of, you know, rationalizing the water
routes and refocusing their business in the water market. I think our view is
that, you know, that they're on the right strategy. They should continue to do
that, and basically just, you know, if possible, accelerate that.
In regards to launching water in Mexico City, you know, at this point in time
as a jug liter, 20 gallon, 20 liter presentation, we don't have any plans.
- --------------------------------------------------------------------------------
MARCO VERO - DEUTSCHE BANK - ANALYST
Okay, great. Thank you.
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
You're welcome.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from Jaime Alvarez. Please state your question.
- --------------------------------------------------------------------------------
JAIME ALVAREZ - ANALYST
Hi. I just wanted to have some comments on the pay notes issue in the Mexican
market by PANAMCO. Do you have any comments on that?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Could you repeat the question, please?
- --------------------------------------------------------------------------------
JAIME ALVAREZ - ANALYST
Yes, I wanted to know any comments from you on the pay notes issued in the
Mexican market by PANAMCO? Particularly, I am interested in the issues made in
all these, and mainly we're interested in the intentions in the grading,
perhaps, or the way it's going to be followed-up?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
Yes, generally, some of the, the way we are envisioning this process at this
moment is that PANAMCO has a bond maturity in April of next year that we are
already providing. Part of this bridge financing and the term loans is to
refinance around $400m of PANAMCO debt, existing PANAMCO debt. Some of that is
debt that would need to be repaid because of this change in control - because
they have change in control provisions, or because of certain [indiscernible],
and also, the bank debt that they have. The only notes that they have we are
expecting to maintain there as they are right now.
- --------------------------------------------------------------------------------
JAIME ALVAREZ - ANALYST
Okay. And any changes, have you heard any changes from Standard & Poor's on
the rating for these notes?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
No, we have not heard anything about that.
- --------------------------------------------------------------------------------
JAIME ALVAREZ - ANALYST
Okay, thanks.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes again from Robert Ford with Merrill Lynch. Please
state your question.
- --------------------------------------------------------------------------------
ROBERT FORD - MERRILL LYNCH - ANALYST
Hi, guys. Sorry about this, but I was cut-off prior to finishing. The first
question was, and it's related to an earlier call that seemed to come-away
with the impression that FEMSA would allow itself to be diluted below a 51
percent economic stake in Coca-Cola FEMSA. I just wanted to make sure that you
will exercise your anti-dilutive rights and maintain your existing stake if
not slightly increase it if the market does not exercise?
And then, too, I wanted to get your view on how this deal impacts the outlook
for additional consolidation in Mexico? I mean despite the size of this merger
many territories really do lack the size to confront the number of packages
and flavors that most of us expect to be introduced in the marketplace over
the next year or two.
- --------------------------------------------------------------------------------
FREDERICO REYES - FEMSA - CFO
Hello, Bob. This Frederico Reyes. FEMSA is subscribing $260m in cash in
[indiscernible] Coca-Cola FEMSA. The proportion, the size of the Coca-Cola
Company contribution is larger than ours. So that's why we are getting a lower
percentage in ownership.
We still must, as we have shown on the slides, we still maintain the majority
of the voting control. And we will be offering the - I mean the public will
have the right to subscribe to whatever the number of shares necessary to
maintain the existing 19 percent. But as up to now, the subscription of FEMSA
will be limited to $260m, which as you point-out it reduces the reduces the
economic interests below 50 percent.
We have an understanding with the Coca-Cola Company that if we so desire we
would, we could go back to 51 percent of the economics. And then they would be
selling to us at fair market prices. So, but right now FEMSA will stay with
this economic interests lower than 50 percent.
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
And Bob, this is John Santa Maria. Just in terms of your question about the
changing dynamics in the consolidation and the potential consolidation of
Mexico, I think that two things.
First, given the entry of [PVG] [ph] into the marketplace, the transaction
that we're entering into right now is very timely, okay. So, I think that you
know, we can be well-positioned competitively. I think, secondly, both these
transactions on a combined basis dramatically change the landscape in the
Mexican soft drink industry.
I think in terms of, you know, putting a timetable in terms of whether
consolidation of Mexico is going to accelerate or not, I think the bias would
be that the pressure for consolidation is going to be there. To be able to say
at what point in time would additional bottlers begin to sell-out, I think
would be a little bit precipitous, but I do think that this will add to
consolidation pressures in Mexico.
- --------------------------------------------------------------------------------
ROBERT FORD - MERRILL LYNCH - ANALYST
Fair enough. Thank you very much.
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes again from David Lieberman with Tiedman Company.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Hi. Just one follow-up, I was curious if there was, you know, any instability
in Venezuela, and how much that would concern you with respect to the
transaction? Any projections in the merger agreement based on that?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
We, clearly the Venezuela situation is something that we have been watching
very carefully. We have built some language that [indiscernible] Coca-Cola
FEMSA and PANAMCO agree into how to treat the, any potential changes in the
Venezuela macro economical, political environment, no. But it's -- I would say
that it is basically what is customary in transactions of this nature.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Right, is that, is it a condition of the transaction that certain things don't
happen in Venezuela?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
We have once before, between signing and closing, Coca-Cola FEMSA have the right
if there is a material effect that is material for the total transaction value
to walk-away from the transaction if something happen with certain limitations.
- -------------------------------------------------------------------------------
ANNETTE FRANQUI - PANAMCO - CFO
What I would add, Hector is that it is, you know, it implies a deterioration
from where we are today.
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
Yes.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Right, but anything specific on Venezuela?
- --------------------------------------------------------------------------------
ANNETTE FRANQUI - PANAMCO - CFO
It would have to be materially adverse to the company as a whole.
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
But it could be Venezuela, or Brazil, or any country. It has to be a large,
material adverse change.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Right, and ...
- --------------------------------------------------------------------------------
ANNETTE FRANQUI - PANAMCO - CFO
The customary language.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Right, and what's the termination fee if the deal doesn't happen because of
financing?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
It's $125m.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
135m?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
1-2-5.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
125m if it doesn't happen because of financing?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
Yes.
- --------------------------------------------------------------------------------
DAVID LIEBERMAN - TIEDMAN COMPANY - ANALYST
Thank you.
- --------------------------------------------------------------------------------
OPERATOR
The next question comes from Jeff Kanter with Prudential Securities. Please
state your question.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Hi, just a quick question. You talked about potentially more consolidation in
Mexico. I would think that there has to be, that you're probably also thinking
about doing some consolidating perhaps in Brazil, as well? If any country, if
there's any country with pressure for consolidation that's probably one of
them. Could you comment on that, please?
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
Jeff, this is John Santa Maria, again.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Hi, John.
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
I think, again, as Frederico Reyes explained, you know, there appears to be in
Brazil opportunity for consolidation, you know. And that is something that has
been discussed by the Coca-Cola Company for some time. But our primary focus
right now is going in and trying to understand the market, and understand what
the go-forward strategy is, and making sure that we operate, you know, the San
Paolo franchise in a manner that would give, enhance the value to our
shareholders.
At this point in time, we do not anticipate any further consolidation or moves
in Brazil. But if, you know, we become successful at helping, you know, the
existing Management Group of PANAMCO in Brazil to turn the situation around,
you know, we will be very, very encouraged to be part of a larger play in
Brazil, if that is what the Coca-Cola Company wants, and that is also the best
interest of our shareholders.
- --------------------------------------------------------------------------------
JEFF KANTER - PRUDENTIAL SECURITIES - ANALYST
Fair enough, thank you very much.
- --------------------------------------------------------------------------------
JOHN SANTA MARIA - FMX - HEAD STRATEGIC PLANNING AND BUSINESS DEVELOPMENT
You're welcome.
- --------------------------------------------------------------------------------
OPERATOR
Ladies and gentlemen, once again, if you do have a question please press star,
one on your pushbutton telephone at this time.
The next question comes from [Minette Carl] [ph] with Salomon Smith Barney.
Please state your question.
- --------------------------------------------------------------------------------
MINETTE CARL - SALOMON SMITH BARNEY - ANALYST
Hi. Yes, good morning. Just two questions, please. I'd like to find-out what
is included in the use of cash of 314b as refinancing of PANAMCO debt? And
second, are there any plans for the PANAMCO `09?
- --------------------------------------------------------------------------------
COMPANY REPRESENTATIVE
What is this question?
- --------------------------------------------------------------------------------
MINETTE CARL - SALOMON SMITH BARNEY - ANALYST
Are there any plans for the longer term bond of PANAMCO due in 2009? Because
you have a plan for the `03s.
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
Yes, the - in the refinancing that you have the line that says 213m is
basically bank financing that PANAMCO has. In certain of the subsidiaries, and
yet [indiscernible] we have is try to put us, the majority of the, to
concentrate the majority of the debt at our
holding company, Coca-Cola FEMSA.
And so we are actually asking or borrowing money to repay some of this bond
debts in order to have a better structure.
In terms of the longer dated bonds of PANAMCO the idea that we have is that
they stay where they are in the meantime, no.
- --------------------------------------------------------------------------------
MINETTE CARL - SALOMON SMITH BARNEY - ANALYST
Okay, thank you.
- --------------------------------------------------------------------------------
OPERATOR
The net question comes from [Narzier Sidu] [ph] with ING Bank. Please state
your question. Mr. Sidu, your line is live, sir.
- --------------------------------------------------------------------------------
NARZIER SIDU - ING BANK - ANALYST
Hi, guys. Just a couple of quick questions. When will you guys be expected to
file with the regulators, and also the timing that you see on that?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
We are expecting basically this deal to close between, in three to four
months.
- --------------------------------------------------------------------------------
NARZIER SIDU - ING BANK - ANALYST
Right. And just a quick second question then. Will we be able to see the
merger agreement document at all? When do you expect that, to file that?
- --------------------------------------------------------------------------------
HECTOR TREVINO - FMX - CFO
I believe so, but I need to check - I mean we are going to file everything
that is required under the regulations on the SEC. And I believe that the
merger agreement is material in nature, and therefore, we will need to file
it. But I need to check with our legal advisors on that.
- --------------------------------------------------------------------------------
ANNETTE FRANQUI - PANAMCO - CFO
Yeah, also Hector, on the first question, the proxy statement filed by
PANAMCO, I would expect that probably in about four weeks we would be filing
that. And then, in terms of timing it would be dependent on whether there's
any regulatory reviews, that will essentially dictate the timeline.
- --------------------------------------------------------------------------------
NARZIER SIDU - ING BANK - ANALYST
Okay, thanks a lot.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
I think this is our last question?
- --------------------------------------------------------------------------------
OPERATOR
Yes, sir. At this time, there are no further questions.
- --------------------------------------------------------------------------------
JOSE ANTONIO FERNANDEZ - FMX - CHAIRMAN OF THE BOARD AND CEO
Thank you very much everybody for attending this presentation. Thanks to Craig
and Annette, thank you very much for all of your help with your
questions-and-answers. And look forward to keeping in touch with you. Happy
holidays to everybody?
- --------------------------------------------------------------------------------
OPERATOR
Ladies and gentlemen, this concludes the conference for today. Thank you all
for participating and have a nice day. All parties may now disconnect. 1
- -------------------------------------------------------
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