EX-99.C.2 4 g80264cexv99wcw2.htm VALUATION MATERIALS

VALUATION MATERIALS

Exhibit (c)(2)

December 20, 2002 Confidential

Project Yellow

Valuation Materials

The material contained in this presentation is confidential to Pancho. Neither this presentation nor any of its contents may be disclosed by any recipient to any third party.

This presentation was prepared exclusively for the benefit and internal use of the JPMorgan client to whom it is directly addressed and delivered (including such client’s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by JPMorgan. Neither this presentation nor any of its contents may be used for any other purpose without the prior written consent of JPMorgan.

The information in this presentation is based upon management forecasts and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the Company or any other entity. JPMorgan makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of consummating a transaction.

JPMorgan’s policies prohibit employees from offering, directly or indirectly, a favorable research rating or specific price target, or offering to change a rating or price target, to a subject company as consideration or inducement for the receipt of business or for compensation. JPMorgan also prohibits its research analysts from being compensated for involvement in investment banking transactions except to the extent that such participation is intended to benefit investors.

JPMorgan is a marketing name for investment banking businesses of J.P. Morgan Chase & Co. and its subsidiaries worldwide. Securities, syndicated loan arranging, financial advisory and other investment banking activities are performed by J.P. Morgan Securities Inc. and its banking affiliates. JPMorgan deal team members may be employees of any of the foregoing entities.

2

Agenda

• Key Financial Terms of Transaction

• Pancho Valuation

3

Key financial terms of transaction

• Transaction

	—	Fernando Jr., Mexico’s largest Red bottler, is seeking to acquire Pancho, the largest bottler in Latin America
	—	Fernando Sr. has made an all cash offer (the “Fernando Offer”) of $22 per Pancho A share and $38 per Pancho B share (to shareholders other than Red)
	—	The offer for Red is for $22 per Pancho share owned by Red payable in Fernando Jr. shares
	—	The offer price for each Pancho A share represents a premium of 117.6% to the stock price at closing on December 19, 2002

4

Agenda

• Key Financial Terms of Transaction

• Pancho Valuation

5

Pancho’s 2002-2005 Strategic Plan

• Pancho has updated its 2002-2005 Strategic Plan reflecting

      — Macroeconomic and operating developments in its countries of operations

      — Pancho’s announced acquisition of Red de Panama

      — Pancho’s announced agreement to convert its Risco water volume in Mexico to Red’s brand Ciel

6

Summary valuation analysis

Implied Pancho price per share(1)

(1)	Estimated net debt and minority interest of US$849 MM as of December 31, 2002. Based on 122.0 MM fully diluted Pancho shares at $22.00 per share using the treasury method
(2)	Based on Pancho 2002-2005 Strategic Plan and Pancho estimates thereafter
(3)	Based on COP and UC data from Pancho Strategic Plan without giving effect to potential tax consequences and transaction costs
(4)	Pancho 2003E COP of $469 MM based on Pancho Strategic Plan
(5)	Pancho 2002E COP of $418 MM based on Pancho Strategic Plan
(6)	Pancho 2002E 1,239 MM UC based on Pancho Strategic Plan

Note:  Current share price as of December 19, 2002

7

Pancho Strategic Plan — Free Cash Flow projections

US$MM

			2003E				2004E				2005E				2006E				2007E				2008E				2009E				2010E				2011E				2012E
COP(1)				469				536				596				636				672				719				769				824				884				949
	% margin			18.8	%			20.3	%			21.3	%			21.7	%			21.8	%			22.1	%			22.5	%			22.8	%			23.2	%			23.6	%
(-) Depr. & Amort				(191	)			(191	)			(190	)			(192	)			(193	)			(205	)			(217	)			(231	)			(246	)			(262	)
Operating Profit				278				344				406				444				479				514				552				593				638				688
	% margin			11.2	%			13.1	%			14.5	%			15.1	%			15.5	%			15.8	%			16.1	%			16.4	%			16.8	%			17.1	%
Tax expenses				81				100				118				129				139				149				160				172				185				199
Effective tax rate				29.0	%			29.0	%			29.0	%			29.0	%			29.0	%			29.0	%			29.0	%			29.0	%			29.0	%			29.0	%
EBIAT				197				244				288				316				340				365				392				421				453				488
(+) Depr. & Amort				191				191				190				192				193				205				217				231				246				262
(-) Capex				206				213				225				234				213				195				205				253				267				262
(-) Inc/(Dec) NWI				(16	)			(3	)			(3	)			4				4				5				5				5				6				6
Unlevered FCF				198				226				256				269				316				370				399				394				426				482

(1)  COP: Cash Operating Profit, proxy for EBITDA

Note: Based on 2002-2005 Strategic Plan as provided by Pancho on December 9, 2002 and Pancho estimates thereafter; change in NWI estimated as 3% of change in revenues from 2006-2010

8

Country risk analysis

Country risk

				Country				% of 2005 cash				Weighted
				risk				operating				country
Country				(SOT)(1)				profit				risk
Mexico					294				58.8	%			173
Guatemala					348				2.8	%			10
Nicaragua					601				2.3	%			14
Costa Rica					347				5.2	%			18
Panama					474				2.1	%			10
Colombia					689				13.1	%			90
Venezuela					1,087				11.8	%			129
Brazil					1,479				3.8	%			57
Total weighted country risk													501

(1)  One-year average of the correspondent 10-year sovereign bond. Nicaragua assumes country risk of Peru, which has a Ba3 country rating, compared to the B2 country rating of Nicaragua

	•	Spread over Treasuries (SOT) is the additional yield spread over which a particular bond trades above the corresponding U.S. Treasury rate of equivalent maturity
	•	It intends to capture the additional return required by investors for the additional risk incurred by investing in that country
	•	The country risk was calculated using the 1-year daily weighted average spread (SOT) of each country’s 10-year sovereign bond
	•	The SOT of each country was weighed based on the contribution of each to the 2005E COP, in order to estimate a total Weighted Country Risk for Pancho

Note: 2005E COP from Pancho’s Strategic Plan

9

We estimate Pancho’s nominal WACC at 12.3%

(1)	Source: Pancho
(2)	Estimated based on weighted average (based on COP per country) of historical spreads over Treasuries of all countries of operation

10

DCF of Pancho’s Strategic Plan

US$MM, except per share data

				A				+				B												=				C
												PV of terminal value																Firm value												Implied FV/2003 COP
				Discounted								COP exit multiple																COP exit multiple												COP exit multiple
				cash flows
WACC				(2003-2012)(1)								4.0x				5.0x				6.0x								4.0x				5.0x				6.0x				4.0x				5.0x				6.0x
	11.3%				1,881								1,300				1,625				1,950								3,181				3,506				3,831				6.8x				7.5x				8.2x
	11.8%				1,840								1,243				1,554				1,865								3,084				3,394				3,705				6.6x				7.2x				7.9x
	12.3%				1,801								1,189				1,486				1,783								2,990				3,287				3,584				6.4x				7.0x				7.6x
	12.8%				1,763								1,137				1,422				1,706								2,900				3,184				3,469				6.2x				6.8x				7.4x
	13.3%				1,726								1,088				1,360				1,632								2,814				3,086				3,358				6.0x				6.6x				7.2x

				-     D				=				E
												Equity value												Equity value per share												Implied perpetuity growth
												COP exit multiple												COP exit multiple												for COP exit multiple
				Net debt
WACC				Dec-02(2)								4.0x				5.0x				6.0x				4.0x				5.0x				6.0x				4.0x				5.0x				6.0x
	11.3%				849								2,332				2,657				2,982			$	19.12			$	21.78			$	24.45				-1.8%				0.5%				2.2%
	11.8%				849								2,234				2,545				2,856			$	18.31			$	20.86			$	23.41				-1.4%				1.0%				2.6%
	12.3%				849								2,140				2,438				2,735			$	17.55			$	19.98			$	22.42				-1.0%				1.4%				3.1%
	12.8%				849								2,051				2,335				2,619			$	16.81			$	19.14			$	21.47				-0.6%				1.8%				3.5%
	13.3%				849								1,964				2,236				2,509			$	16.10			$	18.33			$	20.56				-0.2%				2.3%				4.0%

(1)	Valuation date as of December 31, 2002, based on 2002-2005 Strategic Plan as provided by Pancho on December 9, 2002, and Pancho estimates thereafter
(2)	Projected net debt as of December 2002 as in 2002-2005 Strategic Plan, includes minority interests of US$29MM

Note:  Based on fully diluted shares at $22.00 using the treasury method

11

Present value of illustrative theoretical future stock price based on Pancho’s Strategic Plan (1)

Illustrative theoretical stock price

US$ per Pancho share

2002

		Present value
Next year’s COP Multiple		0.0%
4.5x		$	10.32
5.0x		$	12.24
5.5x		$	14.16
6.0x		$	16.09
6.5x		$	18.01

2003

		Discount rate range
		Future value				Present value
Next year’s COP Multiple		0.0%				13.5%				14.0%				14.5%
4.5x		$	13.76			$	12.14			$	12.08			$	12.03
5.0x		$	15.96			$	14.07			$	14.01			$	13.95
5.5x		$	18.15			$	16.00			$	15.93			$	15.87
6.0x		$	20.35			$	17.94			$	17.86			$	17.78
6.5x		$	22.54			$	19.87			$	19.79			$	19.70

2004

		Discount rate range
		Future value				Present value
Next year’s COP Multiple		0.0%				13.5%				14.0%				14.5%
4.5x		$	17.29			$	13.47			$	13.35			$	13.24
5.0x		$	19.74			$	15.37			$	15.23			$	15.10
5.5x		$	22.18			$	17.26			$	17.11			$	16.97
6.0x		$	24.63			$	19.16			$	18.99			$	18.83
6.5x		$	27.07			$	21.06			$	20.88			$	20.70

2005

		Discount rate range
		Future value				Present value
Next year’s COP Multiple		0.0%				13.5%				14.0%				14.5%
4.5x		$	20.41			$	14.06			$	13.88			$	13.70
5.0x		$	23.02			$	15.84			$	15.64			$	15.44
5.5x		$	25.62			$	17.62			$	17.40			$	17.17
6.0x		$	28.23			$	19.41			$	19.15			$	18.91
6.5x		$	30.84			$	21.19			$	20.91			$	20.65

(1)  Assuming theoretical illustrative multiples on projected 12-month forward COP and projected net debt and minority interest at the end of each year on December 31 based on Pancho’s Management projections. For illustrative purposes, the analysis is performed as if Pancho pays a $0.24 per share dividend, payable quarterly, and uses the remaining free cash flows to pay interest and repay debt. Discounted to December 31, 2002. Based on 122.0 million fully diluted Pancho shares at $22.00 per share using the treasury method

Note:  Illustrative theoretical stock price includes the present value of dividends paid from January 1, 2003 through the year end of each corresponding period

12

Comparison of implied multiples of value of Pancho’s Strategic Plan and of publicly traded peers

		Market				Firm Value				FV/UC								FV/Revenues								FV/COP
		Cap.				(“FV”)
As of 12/19/02		($MM)				($MM)				2002E				2003E				2002E				2003E				2002E				2003E
Pancho current			1,209				2,058			$	1.66			$	1.57				0.9x				0.8x				4.9x				4.4x
Mid point value of Pancho DCF(1)							3,287			$	2.65			$	2.51				1.4x				1.3x				7.9x				7.0x
Fernando Offer			2,788				3,637			$	2.94			$	2.78				1.5x				1.5x				8.7x				7.8x
International Bottlers
CCE			9,459				21,364			$	5.33			$	5.17				1.3x				1.2x				8.9x				8.3x
PBG			7,073				10,556			$	3.91			$	3.72				1.2x				1.1x				8.0x				7.4x
Amatil			2,034				3,045			$	5.10			$	4.82				1.6x				1.3x				9.9x				8.3x
Mean										$	4.78			$	4.57				1.3x				1.2x				8.9x				8.0x
Median										$	5.10			$	4.82				1.3x				1.2x				8.9x				8.3x
Latin America Bottlers
Fernando Jr.			3,079				2,858			$	4.65			$	4.56				1.6x				1.6x				5.2x				5.3x
Arca			1,359				1,430			$	3.41				NA				1.1x				NA				4.2x				NA
Contal			1,235				1,024			$	3.00			$	2.86				1.0x				1.0x				4.4x				4.3x
Andina			859				824			$	2.50			$	2.49				1.5x				1.6x				7.2x				8.4x
Mean										$	3.39			$	3.30				1.3x				1.4x				5.3x				6.0x
Median										$	3.21			$	2.86				1.3x				1.6x				4.8x				5.3x

(1)  Value of Pancho at $19.98 per share

Note:  Pancho’s estimated net debt as of December 31, 2002 of $849MM, including $29MM in minority interest

Source:  Company reports, Bloomberg, JPMorgan research estimates and Pancho Strategic Plan for Pancho data

13

DCF of Pancho’s Strategic Plan including 50% of the assumed synergies

in a theoretical transaction with Fernando Jr.

Assuming synergies split evenly between buyer and seller

Pancho firm value (US$MM)

														Value of 100% of												Firm value + 50% of
		Firm value(1)												synergies												synergies
		COP exit multiple												COP exit multiple												COP exit multiple
WACC		4.0x				5.0x				6.0x				4.0x				5.0x				6.0x				4.0x				5.0x				6.0x
11.3%			3,181				3,506				3,831				377				401				425				3,370				3,707				4,044
11.8%			3,084				3,394				3,705				367				390				413				3,267				3,589				3,912
12.3%			2,990				3,287				3,584				358				380				402				3,169				3,477				3,785
12.8%			2,900				3,184				3,469				349				370				391				3,074				3,369				3,664
13.3%			2,814				3,086				3,358				340				360				381				2,984				3,266				3,548

Equity value per Pancho share (US$/share)

														Equity value per share												Equity value per share +
		Equity value per share(1)												of 100% of synergies												50% of synergies
		COP exit multiple												COP exit multiple												COP exit multiple
WACC		4.0x				5.0x				6.0x				4.0x				5.0x				6.0x				4.0x				5.0x				6.0x
11.3%		$	19.12			$	21.78			$	24.45			$	3.09			$	3.29			$	3.48			$	20.66			$	23.42			$	26.19
11.8%		$	18.31			$	20.86			$	23.41			$	3.01			$	3.20			$	3.39			$	19.82			$	22.46			$	25.10
12.3%		$	17.55			$	19.98			$	22.42			$	2.93			$	3.11			$	3.29			$	19.01			$	21.54			$	24.07
12.8%		$	16.81			$	19.14			$	21.47			$	2.86			$	3.03			$	3.20			$	18.24			$	20.66			$	23.07
13.3%		$	16.10			$	18.33			$	20.56			$	2.79			$	2.95			$	3.12			$	17.50			$	19.81			$	22.12

(1)  Please refer to DCF of Pancho’s Strategic Plan

Note:  Synergies based on 3.5% of Pancho’s and Fernando’s Mexico cash costs in 2003, which approximate $70MM pre-tax. 50% of annual synergies assumed realized in 2003, and 100% thereafter. Synergies tax-effected at 29.0%

14

Pancho illustrative break-up valuation

Value components(1)

      US$MM, except per share data

Mexico FV/03 COP
7.0x		8.0x
$2,012		$2,299
Central America FV/03 COP
7.0x		8.0x
$405		$463
South America FV/03 UC
$1.33		$1.67
$925		$1,156
Combined FV
$3,342		$3,918
Combined Equity Value
$2,492		$3,069
Implied price/ share
$20.43		$25.15

(1) Based on 122.0 MM fully diluted shares

Considerations

      Achieving break-up value depends on:

	•	Level of interest from potential buyers for Central America and in particular for South America
	•	Any potential adverse tax consequences which have not been considered
	•	Overall execution risk, timing of execution and execution expenses

15

Analysis of the Fernando Offer

						Series A
						shares
Stock price		Data				$22.00
Premium to:
Current Pancho A stock price (12/19/02)		$	10.11				117.6%
1-day prior		$	9.67				127.5%
1-month average		$	9.24				138.2%
3-month average		$	8.98				145.0%
6-month average		$	10.57				108.1%
1-year average		$	13.59				61.9%
52-week high		$	18.69				17.7%
52-week low		$	7.67				186.8%

16

Analysis of the Fernando Offer (cont’d)

						Current				Fernando
Stock price		Data				price(1)				Offer
Valuation
Number of A shares (MM)(2)							113.1				115.5
Number of B shares (MM)(3)							6.5				6.5
Total equity value ($MM)						$	1,209			$	2,788
Net debt ($MM)(4)						$	849			$	849
Firm value ($MM)						$	2,058			$	3,637
Transaction multiples
2002E Unit cases (MM)			1,239			$	1.66			$	2.94
2003E Unit cases (MM)			1,310			$	1.57			$	2.78
2002E Revenues		$	2,397				0.9x				1.5x
2003E Revenues		$	2,489				0.8x				1.5x
2002E COP		$	418				4.9x				8.7x
2003E COP		$	469				4.4x				7.8x
2002E P/E(5)							16.0x				36.9x
2003E P/E(5)							10.0x				23.2x

(1) Current Pancho share price of $10.11 as of December 19, 2002

(2)	Fully diluted shares (calculated using the treasury stock method) at each correspondent price; includes Red’s B shares
(3)	Assumes Red accepts same price for its Pancho B shares as for its Pancho A shares
(4)	Estimated net debt and minority interest for Pancho as of December 2002
(5)	Includes expenses from Pancho headquarters

Note: Pancho estimates

17

Premiums paid analysis

Global announced deals in the consumer sector between US$1.0 billion and US$5.0 billion from January 1, 2000 to December 19, 2002

(1)	27 transactions, excludes withdrawn deals
(2)	4 transactions
(3)	Premiums calculated based on December 19, 2002 Pancho closing price of $10.11 per share

18

Transaction multiples for the soft drinks sector in Latin America

												Transaction				FV/LTM
								%				value																UC				%
Date				Acquirer		Target		stake				($MM)(1)				UC				Sales				COP				(MM)				COP
	2002			Pancho		Coca-Cola de Panama			100	%			73			$	3.8				1.2	x			7.9	x			19				15	%
	2002			Pepsi Bottling Group		Pepsi-Gemex			100				1,264				3.3				0.9				6.0				383				15	%
	2001			South African Breweries		Cerveceria Hondureña			97				537				NA				2.1				8.5				NA				NA
	2000			Grupo Continental		Tecoman			100				42				2.6				NA				NA				16				NA
	2000			Pepsi-GEMEX		EMVASA			97				110				1.6				0.6				4.8				67				13
	2000			Quilmes		Embotelladora del Interior (Edisa)			99				37				1.6				NA				NA				23				NA
	2000			UCPB&J		Frontera			100				25				1.4				0.6				NA				18				NA
	1999			Quilmes		BAESA			51				304				2.7				1.0				NA				112				6
	1999			Red		Paraguay Refrescos			58				110				4.4				1.7				9.7				25				17
	1999			Andina		Perma			100				108				2.5				NA				NA				43				NA
	1999			Embotelladora Arica		Inchcape (Williamson Balfour)			100				612				9.2				2.8				12.1				67				23
	1999			Embotelladora Arica		ELSA			72				283				4.3				1.9				12.3				66				9
	1998			Sistema Argos		Chihuahua/ Stege			100				120				5.7				1.9				6.1				21				32
	1998			Pancho		Refrigerantes do Oeste, Supripack			100				48				2.4				1.2				6.9				19				17
	1998			Pancho		Embotelladora Central			100				62				4.4				1.2				5.3				14				12
	1997			Fernando		Socunosco (Tapachula)			100				12				1.7				NA				NA				7				NA
	1997			Brahma		BAESA			100				155				1.4				0.5				NA				111				NM
	1997			Pancho		Milca			100				42				2.8				1.2				NA				15				NA
	1997			Pepsi-GEMEX/ Pepsi Mexicana		Embotelladora Agral			100				50				1.7				NA				NA				29				NA
	1997			Pancho		Coca Cola-Hit de Venezuela			100				1,100				5.5				2.4				10.8				200				22
	1996			Andina		INTI (Cordoba)			79				77				2.9				0.8				NA				27				NA
	1996			Pepsi-GEMEX		San Luis Potosi Pepsi			100				21				2.9				NA				NA				7				NA
	1996			Polar		Bahía Blanca, Menipal, Cacabuco, Neuquén			100				55				2.4				0.7				NA				23				NA
	1996			Fernando		San Isidro Refrescos			100				60				2.6				0.6				NA				23				NA
	1995			Pancho		Tica			100				75				3.6				1.0				4.1				21				24
	1995			Embotelladora Arica		Embotelladora Boliviana (Vascal S.A.)			100				38				2.0				NA				NA				19				NA
	1995			Pancho		Santos			100				61				3.6				0.9				NA				17				NA
	1995			Andina		EDASA (Rosario, Mendoza)			59				76				2.5				0.7				NA				30				NA
	1993			Fernando		Coca-Cola Industrial y Comercial			51				100				2.7				0.7				NA				37				NA
				Median												$	2.7				1.0x				7.4x

(1)  Equity value plus assumed debt

19