FEMSA Buys A 40% Socofar Stake, Boosts Drugstore Operations

Fomento Economico Mexicano, S.A.B. de C.V. (NYSE:FMX) , alias FEMSA, completed its earlier announced acquisition of the remaining 40% stake in Grupo Socofar (“Socofar”). The transaction was the result of Socofar’s minority shareholders exercising their put right of selling the remaining 40% interest in Socofar, which was announced in late December 2019.

In 2015, FEMSA had acquired a majority equity stake in Grupo Socofar. Following the latest transaction, FEMSA, through its subsidiary FEMSA Comercio, has become the sole shareholder of Socofar.

Further, this acquisition is likely to take FEMSA Comercio’s long-term initiative of creating a leading regional drugstore platform, another step ahead. Additionally, the acquisition will open up opportunities for the expansion of its drugstore business in South America and Mexico.

The company’s FEMSA Comercio subsidiary operates various small-format store chains in Mexico, Colombia, Chile, Peru and Ecuador. These chains include OXXO proximity stores, drugstores and Maicao beauty stores. It also operates service stations in Mexico under the OXXO GAS brand.

FEMSA Comercio’s drugstore business operating under the brands YZA, Farmacon, Moderna, Cruz Verde, Fybeca and SanaSana is viewed to have significant growth potential. The company is capitalizing on the growing drugstore industry through the integration of the recently acquired Ecuador-based Corporación GPF (“GPF”).

GPF is a leading drugstore operator in Ecuador, with more than 620 points of sales across the country, operating under banners — Fybeca and SanaSana. The transaction bolstered FEMSA’s position in the South American drugstore industry by combining FEMSA Comercio’s retail expertise with GPF’s attractive growth avenues as well as Socofar’s profound knowledge of the Ecuadorian market.

Further, the company is on track with its efforts to build infrastructure and integrate its four legacy drugstore operations into a single operating platform. We believe FEMSA’s venture into the drugstore business strategically fits its chain store business and will be accretive to both its top and bottom lines in the long term.

Apart from this, FEMSA has been taking prudent steps to diversify its product portfolio while expanding in the small-box retail segment. In sync, the company recently formed a 50-50 JV with Raízen Conveniencias in Brazil, and acquired a minority stake and signed an agreement to form a JV with Jetro Restaurant Depot (“JRD”). The Raízen JV marks FEMSA Comercio’s entry in Brazil’s convenience sector as a developer and operator of small-format proximity and convenience stores.

Meanwhile, FEMSA entered the wholesale cash and carry business in the United States with the acquisition of minority stakes in JRD. Further, the proposed JV provides the necessary background to bring the cash and carry business platform to Mexico and other Latin American markets in the long run.

Driven by these strategic efforts, shares of the Zacks Rank #4 (Sell) company have gained 5.8% in the past three months compared with the industry’s 1.3% growth.

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