Coca-Cola to Buy Stake in Mexico Firm : Investment: The $195-million deal with the No. 1 bottler there illustrates Coke’s market- share battle with Pepsi.

MEXICO CITY â€”  Coca-Cola Co. said Monday that it has agreed to buy a 30% stake in Mexico’s largest bottler--a $195-million investment that underscores the growing competition between Coke and Pepsico Inc. for Mexico’s fast-growing soft drink market.

Coke’s agreement with the soft drink subsidiary of Monterrey-based Femsa follows Pepsi’s March announcement that it will invest $115 million for minority interests in three Mexican bottlers.

The Mexican market--about $5.3 billion a year--is becoming increasingly important to the U.S. soft drink concerns because it is second only to the United States in both per capita and overall consumption. Further, Mexico’s soft drink consumption is growing at about 7% a year, more than twice the growth rate in the United States.

Both Pepsi and Coke have announced plans to devote considerable attention to Mexican operations.

Overall, Coke said, its franchisees will invest about $1.5 billion in upgrading and expanding plants in Mexico. Pepsi has said it plans to directly invest about $750 million over five years.

In a joint news conference here, officials of Coke and Femsa also described a $500-million plan to upgrade and expand Femsa’s bottling operations in Mexico City and southeastern Mexico by selling shares of Femsa Refrescos, as the joint venture will be called, on international stock markets.

Coke Chairman Roberto C. Goizueta said the investment in Femsa is a key part of the company’s Latin America strategy. He said the joint venture will be a vehicle for purchasing other bottling franchises in the region.

The Femsa purchase is the latest move in Coke’s continuing efforts to reinvest in its bottling network and to increase the efficiency of the company’s international network, said George Thompson, an analyst at Prudential-Bache Securities.

In New York Stock Exchange trading Monday, Coke’s shares closed at $39.625, up 75 cents.

In Mexico City trading, Femsa’s stock fell 3.67 pesos (about $1.18) to 11.80 pesos (about $3.81) in heavy trading as investors expressed their disappointment in the price Coke paid for the long-anticipated purchase.

“The price is not the most important element in this agreement,� Femsa President Othon Ruiz Montemayor said.

Femsa said it will use the proceeds to pay down its debt. But the purchase price disappointed analysts, said Kristi King, who follows Femsa for D.A. Campbell Co. in Santa Monica, because savings from debt reduction won’t offset the 30% reduction in the parent company’s earnings from the bottling subsidiary that will now go to Coke.

The U.S. companies’ growing interest in the Mexican soft drink market comes as the Mexican government has liberated the market from 40 years of price controls in return for bottlers’ commitment to invest $4.4 billion and create 53,000 new jobs over the next seven years.

Mexico’s Soft Drink Surge

While Mexico’s soft drink consumption is still less than that of the United States, Mexico’s per capita consumption since 1985 has grown faster. Moreover, Mexico’s market grew 5.6% between 1990 and 1991, while the U.S. market declined.

Source: PepsiCo de Mexico