Mexico Arca, Contal Merger To Create $80 Million In Synergies

The merger of Mexican Coca-Cola bottlers Embotelladores Arca SAB (ARCA.MX, EMBVF) and Grupo Continental (CONTAL.MX), or Contal, is expected to generate annual synergies of $80 million by its third year, company officials said Tuesday.

"We are in the process of preparing all the steps to synergize, in terms of distribution and production," Arca Chief Executive Francisco Garza said on a conference call with investors to discuss the merger, adding that the figure is a conservative estimate.

In response to an analyst's question as to whether plants will be closed, Garza noted that Arca and Contal "have some facilities that are close to other ones; that's clear."

Arca and Contal on Monday announced plans to merge into Latin America's No. 2 Coca-Cola bottler, with annual sales volume above 1.2 billion unit cases. Mexico's Coca-Cola Femsa SAB (KOF, KOF.MX) is the region's top Coca-Cola bottler.

Among the expected benefits of the merger, Garza and Contal Chief Executive Miguel Angel Rabago said, are economies of scale, exchange of best practices, and geographic and product diversification.

Arca and Contal's former owners will maintain a 76.3% equity stake in the new company, to be known as Arca Continental. Coca-Cola Co. (KO) will have a 7.7% share derived from its current stake in Contal.

The merger still requires shareholder and regulatory approval. Company officials said they expect Mexico's antitrust commission, known as Cofeco, to approve the transaction.

Both companies' shares were trading sharply higher on the Mexican Stock Exchange on Tuesday, with Arca up 13% at 66.90 pesos ($5.53) and Contal up 13% at 42.74 pesos.

-By Paul Kiernan, Dow Jones Newswires; (5255)5980-5178; [e-mail]