The weak peso is complicating transactions involving Mexicancompanies, driving up prices in local currency for acquisitionsabroad or creating an unforeseen bargain for a foreign buyer, withat least one deal being revalued to adjust for the changes.

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When Mexico City-based Coca-Cola Femsa agreed, with partnerCoca-Cola Co., to acquire the AdeS soy-based beverage business fromLondon-based Unilever for $575 million in June, the deal was valuedat 10.6 billion pesos. Now the peso-denominated cost is about 9%higher. Like other Mexican public companies, Coke Femsa has atleast some hedges for currency risk, but it has to book itsholdings in pesos for accounting purposes.

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Likewise, Grupo Lala said in May that it would buy certain U.S.assets from Laguna Dairy for $246 million. Currency weakness hasadded more than 10% to the peso-denominated price tag for the dairycompany. The deal's dollar price remains unchanged, AlbertoArellano, Lala's chief financial officer, said in an email.

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“These deals are all set in U.S. dollars because they're mostlyU.S. companies,” said Manuel Jimenez, head of analysis at GrupoFinanciero Banorte. “It's likely any operations that are pendingwill have to take into account currency effects.”

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Coca-Cola Femsa didn't respond to a request for comment. Thecompany had about 25% of its dollar needs in Mexico hedged as ofOctober, executives said on a conference call then.

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The peso's 10% depreciation against the dollar in the past 12months — weighed down by U.S. President Donald Trump's talkof tariffs on imports — could also force acquirers of Mexicancompanies to revalue their transactions. Delta Air Lines Inc. saidMonday it had boosted its offer for a stake in Grupo Aeromexico SABto 53 pesos a share from 43.59 pesos, mainly due to exchange-ratemovements.

Common Practice

It's becoming more common for cross-border transactions toaccount for currency volatility, with many deals set in dollars orat a fixed exchange rate, said Bernardo Reyes Retana, a lawyer whoworks on mergers and acquisitions at Gonzalez Calvillo in MexicoCity.

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“Those who don't do it learn from their mistakes the hard way,”he said.

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Despite the currency volatility, mergers and acquisitionsinvolving Mexican companies have remained steady over the past fewyears. There were 37 deals with Mexican buyers or sellers lastyear, compared with 41 in 2015 and 39 in 2014, according to datacompiled by Bloomberg.

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More activity is likely in 2017 as companies adjust to thechanging geopolitical landscape. Alfa, one of Mexico's biggestconglomerates, announced plans this week to shed energy assets inTexas and Peru, giving up on a plan to grow in the industry becauseof the slump in oil prices over the last few years.

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Bloomberg News

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