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Propimex, S. de R.L. de C.V. – ‘PRER14A’ on 3/18/03

On:  Tuesday, 3/18/03, at 10:54am ET   ·   Accession #:  950123-3-2921   ·   File #:  1-12290

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/18/03  Propimex, S. de R.L. de C.V.      PRER14A                1:1.4M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: PRER14A     Panamerican Beverages, Inc.                         HTML   1.48M 

SCHEDULE 14A

Information Required in Proxy Statement

Reg. § 240.14a-101

SCHEDULE 14A INFORMATION

Filed by the Registrant x

Panamerican Beverages, Inc.

Payment of Filing Fee (Check the appropriate box):

Class A Common Stock, par value $.01 per share, of Panamerican Beverages, Inc.; Class B Common Stock, par value $.01 per share, of Panamerican Beverages, Inc.; Series C Preferred Stock, par value $.01 per share, of Panamerican Beverages, Inc.; and options to acquire shares of Class A Common Stock.

112,793,056 shares of Class A Common Stock, 8,659,757 shares of Class B Common stock, 2 shares of Series C Preferred Stock and options to acquire 5,353,638 shares of Class A Common Stock.

It is contemplated that:

$2,311,480,467.46

$212,686.61

$212,686.61

Schedule 13E-3

Panamerican Beverages, Inc., Coca-Cola FEMSA, S.A. de C.V.

January 30, 2003

[PB LOGO]

Letter to Panamerican Beverages, Inc. Stockholders

Dear Panamco Stockholder:

Sincerely,

Craig D. Jung

      NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, OR PASSED UPON THE MERITS OR FAIRNESS OF THIS TRANSACTION, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE ENCLOSED PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

      The proxy statement is dated March [     ], 2003 and was first mailed to Panamco stockholders on or about March [     ], 2003.

PANAMERICAN BEVERAGES, INC.

701 Waterford Way, Suite 800

Notice of Special Meeting of Stockholders

To the Stockholders of Panamerican Beverages, Inc.:

      Pursuant to Article II, Section 4 of the Amended and Restated By-Laws of Panamerican Beverages, Inc., notice is hereby given that a special meeting of stockholders of Panamerican Beverages, Inc. will be held at [               ] located at [               ] on [               ], 2003, at [               ], local time.

      The purposes of the special meeting are:

      1. For the holders of Class B Common Stock:

      2. For the holders of Class A Common Stock, subject to the affirmative vote of the holders of the Class B Common Stock with respect to 1(b) above, to consider and vote, as a class, upon a proposal to approve the Merger Agreement and the merger; and

      3. For the holders of Series C Preferred Stock, to consider and vote, as a class, upon a proposal to approve the Merger Agreement and the merger.

      The Merger Agreement and related agreements contemplate, among other things, that:

      The Merger Agreement is more fully described in the accompanying proxy statement and is attached as Annex A to the accompanying proxy statement. No other matters, except, upon appropriate motion of a stockholder vote, to adjourn or postpone the special meeting, may be brought before the special meeting.

      The Board of Directors has fixed the close of business on March 14, 2003 as the record date for determining stockholders entitled to notice of, and to vote at, the special meeting and any adjournment or postponement of the meeting. A list of stockholders entitled to vote at the special meeting will be available for

      The accompanying proxy statement describes the proposed merger, the actions to be taken in connection with the merger and additional information about the parties involved and their interests. Please give all this information your careful attention.

      The Board of Directors recommends that all classes of stockholders vote “FOR” approval of the Merger Agreement and the merger. The Board of Directors also recommends that the holders of Class B Common Stock vote “FOR” asking the holders of Class A Common Stock, as a class, to approve the Merger Agreement and the merger.

      Unless you hold your shares of Class B Common Stock as a participant in the voting trust (the “Voting Trust”) for which Woods W. Staton II and James M. Gwynn act as voting trustees (the “Voting Trustees”), please sign and return the enclosed BLUE proxy card as promptly as possible, whether or not you plan to attend the special meeting in person. You may revoke the proxy at any time before your proxy is voted in the special meeting in the manner described in the attached proxy statement. Any stockholder present at the special meeting, including any adjournment or postponement, may revoke such stockholder’s proxy and vote personally on the Merger Agreement and the merger and any other matters to be considered at the special meeting. Executed proxies with no instructions indicated thereon will be voted “FOR” approval of the Merger Agreement and the merger and, in the case of an executed proxy with no instructions that relates to Class B Common Stock, “FOR” approval of asking the holders of Class A Common Stock, as a class, to approve the Merger Agreement and the merger.

      If you hold your shares of Class B Common Stock as a participant in the Voting Trust, please DO NOT complete and return the enclosed BLUE proxy card. Instead, you must give instructions to the Voting Trustees by way of the enclosed GREEN direction to vote your shares by returning your completed instructions to Georgeson Shareholder, 17 State Street, 10th Floor, New York, New York 10004, Attention: Voting Trustees of the Panamerican Beverages, Inc. Voting Trust.

      Please do not send your stock certificates at this time.

TABLE OF CONTENTS

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SUMMARY

      This summary highlights some of the information from this proxy statement and may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger, you should carefully read this entire document, including the annexes and other documents to which we have referred you. See “Other Matters — Where You Can Find More Information” on page 114 for more details.

Summary Term Sheet

Questions and Answers About The Merger

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The Companies (see page 93)

      Panamco is the largest soft drink bottler in Latin America and the third largest bottler of the soft drink products of The Coca-Cola Company in the world, as measured by sales volume in unit cases sold per year in 2002. Panamco produces and distributes Coca-Cola, Sprite, Fanta, Lift and other beverages of The Coca-Cola Company in its bottling territories in Mexico, Brazil, Colombia, Venezuela, Costa Rica, Nicaragua, Guatemala and Panama, along with bottled water, beer and other beverages in some of these territories. Panamco has two classes of common stock: Panamco’s Class A Common Stock, which in general has no voting rights, and Panamco’s Class B Common Stock, which is entitled to vote (together, “Panamco’s Common Stock”). Panamco’s Class B Common Stock represents approximately 7.1% of the outstanding shares of Panamco’s Common Stock. Panamco also has one class of preferred stock: Panamco’s Series C Preferred Stock. The Coca-Cola Company, through its subsidiaries, beneficially owns approximately 25.2% of Panamco’s Class A Common Stock, approximately 25.0% of Panamco’s Class B Common Stock and 100% of Panamco’s Series C Preferred Stock. Venbottling Holdings, Inc. beneficially owns approximately 9.0% of Panamco’s Class B Common Stock and approximately 9.1% of Panamco’s Class A Common Stock. The Voting Trust holds approximately 59.5% of Panamco’s Class B Common Stock.

      Coca-Cola FEMSA produces Coca-Cola, Sprite, Fanta, Lift and other beverages of The Coca-Cola Company in the Valley of Mexico and the Southeast territories in Mexico and in the Buenos Aires territory in Argentina. Coca-Cola FEMSA has bottling facilities and services retailers in Mexico and Buenos Aires. Fomento Económico Mexicano, S.A. de C.V., referred to in this proxy statement as FEMSA, beneficially owns a 51.0% equity interest in Coca-Cola FEMSA. The Coca-Cola Company beneficially owns a 30.0% equity interest in Coca-Cola FEMSA.

      Midtown Sub is a corporation incorporated under the laws of the Republic of Panama and is a wholly owned subsidiary of Coca-Cola FEMSA. It was established for the sole purpose of merging with and into Panamco.

Interests of Certain Persons in the Merger (see page 50)

      In considering the recommendation of the Panamco board to vote for the proposal to approve the Merger Agreement and the merger, you should be aware that the directors and executive officers of Panamco listed on pages 51-53 have interests in the merger that are in addition to, or different from, the interests of Panamco stockholders generally and that create potential conflicts of interest. These interests include:

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      The Panamco board was aware of, and considered the interests of, its directors and executive officers when it considered and approved the Merger Agreement and the merger and determined to recommend to Panamco stockholders that they vote for the proposal to approve the Merger Agreement and the merger.

Arrangements with The Coca-Cola Company (see page 54 and Annex E)

      Each of Panamco and Coca-Cola FEMSA operates primarily pursuant to bottling and related agreements with The Coca-Cola Company and its subsidiaries. In addition, The Coca-Cola Company, through subsidiaries, is a significant stockholder of both Panamco and Coca-Cola FEMSA and has significant rights in connection with the governance of Panamco and Coca-Cola FEMSA.

      The subsidiaries of The Coca-Cola Company that hold Panamco stock have made specified undertakings to support and facilitate the merger for the benefit of Panamco and Coca-Cola FEMSA. In consideration for these undertakings, Coca-Cola FEMSA has made undertakings for the benefit of The Coca-Cola Company and its subsidiaries, including specified indemnification obligations following the merger and undertakings to take specified actions and refrain from specified others to facilitate the ability of The Coca-Cola Company to receive favorable tax treatment in connection with its subsidiaries’ receipt of the merger consideration. In addition, The Coca-Cola Company and FEMSA have memorialized their understandings relating to specified operational and business issues that will affect the combined company following completion of the merger in a memorandum included as Annex E to this proxy statement.

Financing of the Merger (see page 60)

      Coca-Cola FEMSA estimates that approximately $2.72 billion will be required to pay the cash merger consideration and cash out options pursuant to the Merger Agreement, pay related transaction costs and refinance approximately $446 million of outstanding Panamco consolidated indebtedness. Coca-Cola FEMSA expects to finance these costs with:

      The committed credit facilities consist of:

      The completion of the merger is conditioned on the disbursement of funds under the credit facilities by the lenders, and the lenders’ commitments are subject to various conditions, including the absence of material adverse changes and the investment grade rating of the combined company. The commitments expire on September 18, 2003.

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The Merger (see page 72)

      The Merger Agreement is attached as Annex A to this proxy statement. We encourage you to read the entire Merger Agreement carefully, as the Merger Agreement is the legal document that governs the merger.

      After the satisfaction or waiver of the conditions to the merger set forth in the Merger Agreement, Midtown Sub will be merged with and into Panamco. Panamco will survive the merger and continue to exist as a wholly owned subsidiary of Coca-Cola FEMSA. The directors of Panamco at the effective time of the merger will be those designated by Coca-Cola FEMSA to be directors of Midtown Sub.

Conditions to the Merger (see page 81)

      Panamco and Coca-Cola FEMSA are not required to complete the merger unless a number of conditions are satisfied or waived, including:

      In addition, the obligation of Coca-Cola FEMSA to complete the merger is subject to the satisfaction or waiver of the conditions that:

Termination of the Merger Agreement (see page 83)

      The Merger Agreement may be terminated at any time prior to the closing of the merger:

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Termination Fee (see page 83)

      Panamco will be required to pay Coca-Cola FEMSA a termination fee of $125,000,000, and reimburse up to $15,000,000 of expenses, in cash if:

      Coca-Cola FEMSA will be required to pay Panamco a termination fee of $125,000,000, and reimburse up to $15,000,000 of expenses, if the Merger Agreement is terminated under circumstances specified in the Merger Agreement and the reason why the merger had not been completed prior to termination is a failure of either the financing condition or the ratings condition to have been satisfied (other than as a result of a breach by Panamco) or waived.

Regulatory Requirements (see page 62)

      In response to the filing requirements under the Hart-Scott-Rodino Antitrust Improvements Act, Coca-Cola FEMSA and Panamco filed a notification and report form relating to the merger on January 22, 2003 with the U.S. Federal Trade Commission and the U.S. Department of Justice. On February 4, 2003, the statutory waiting period was terminated, allowing the merger to close without any further antitrust-related pre-merger conditions or approvals in the United States. Notifications have also been made to antitrust authorities in Mexico and Brazil, and these authorities are conducting a review of the merger. However, we understand that applicable competition laws in Mexico and Brazil permit the completion of the merger before the expiration of these investigations. The Merger Agreement does not require the parties to close while any approvals or waiting periods required under Mexican antitrust law are pending or have not expired. We are not aware of any material governmental approvals or actions that may be required for the completion of the merger other than as described above and other than the filing for registration and completion of registration of the certificate of merger with the Public Registry Office of the Republic of Panama.

      In connection with seeking any approval of a governmental entity, the efforts of Coca-Cola FEMSA and Panamco may include agreeing to conditions imposed by regulatory authorities on the conduct of the business of the combined company after the merger. However, Coca-Cola FEMSA and Panamco need not accept

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Fees and Expenses (see page 67)

      Except where a termination fee is payable, the Merger Agreement generally requires, whether or not the merger is completed, that all fees and expenses incurred in connection with the merger will be paid by the party incurring those fees and expenses. See “The Merger Agreement and the Stockholder Agreements — The Merger Agreement” on page 72 for a discussion of the reimbursement of expenses under certain circumstances where a termination fee is payable.

Selected Historical Financial Information

      Set forth below is selected historical consolidated financial information with respect to Panamco excerpted or derived from the information contained in Panamco’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001, which is incorporated into this proxy statement by reference, and Panamco’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, incorporated into this proxy statement by reference. More comprehensive financial information than what is summarized below is included in such reports and other documents filed by Panamco with the Securities and Exchange Commission. The following summary is qualified by reference to such reports and other documents and all of the financial information including any related notes, contained therein. For information on how to inspect and obtain these reports and other documents, see the discussion under “Other Matters — Where You Can Find More Information” on page 114.

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Panamerican Beverages Inc.

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SPECIAL FACTORS

Background of the Merger

      Panamco and Coca-Cola FEMSA are the two largest Coca-Cola bottlers in Latin America (as measured by sales volume in unit cases sold per year in 2002) and have been “anchor” bottlers for The Coca-Cola Company since the mid-1990s. As participants in the Coca-Cola bottling system, the two companies interact regularly in different business contexts, and, as such, the senior executives of Panamco and Coca-Cola FEMSA meet frequently with each other or with The Coca-Cola Company to discuss issues facing the Coca-Cola bottling system in Latin America. It has become clear over the last several years that significant consolidation of the Coca-Cola bottling system in Latin America would enhance efficiency and reduce costs and, as the two largest Coca-Cola bottlers in Latin America, Panamco and Coca-Cola FEMSA have been active in making acquisitions of other Coca-Cola bottlers, with Panamco acquiring bottlers in Venezuela, Brazil and Central America, while Coca-Cola FEMSA has been expanding in Mexico and Argentina. As part of their efforts to enhance the Coca-Cola bottling system in Latin America, in 1999, Panamco and Coca-Cola FEMSA jointly commissioned the preparation by an outside consulting firm of an analysis of the potential synergies that could result from sharing certain functions in their Mexican operations. This analysis concluded that a combination of the Mexican operations of Panamco and Coca-Cola FEMSA should result in synergies of between $60 million and $70 million per year, on a pre-tax basis and without taking into account any costs of realizing such synergies. The analysis did not include any valuations of either company or of their respective Mexican operations and concluded without resulting in any serious discussions or negotiations regarding such a potential sharing of functions or any discussion of a combination of the two companies. In recognition of the need for rationalization and the prospect for significant synergies in Mexico, in the summer and fall of 2001 there were extensive discussions between Panamco and Coca-Cola FEMSA, and their respective financial, legal and tax advisors, regarding a potential stock-for-stock “merger-of-equals” combination of Panamco and Coca-Cola FEMSA. These discussions subsequently ended in November 2001, as the parties were unable to agree on a desirable structure for such a combination from a tax and corporate law perspective. No substantive negotiations regarding valuation of Panamco or the relative valuation of Panamco and Coca-Cola FEMSA took place during these discussions.

      Following termination of these discussions, in December 2001, José Antonio Fernández Carbajal, the Chairman and Chief Executive Officer of FEMSA and a director of Coca-Cola FEMSA, contacted Mr. Woods Staton, a director of Panamco and a beneficial owner of 39.3% of Panamco’s Class B Common Stock, to discuss whether Mr. Staton would be interested in pursuing a transaction that would involve the sale of his shares of Panamco’s Class A Common Stock for $18.60 per share, which represented a premium of approximately 25.3% to the average closing price of such shares on The New York Stock Exchange in the month of December 2001, and the sale of his shares of Panamco’s Class B Common Stock for $40 per share. Mr. Staton indicated that he was not interested in pursuing a transaction at that time. In the spring of 2002, Mr. Fernández Carbajal informally approached Mr. Staton again about a possible transaction, and Mr. Staton reiterated that he was not interested in pursuing a transaction.

      On August 27, 2002, FEMSA, the parent company of Coca-Cola FEMSA, sent a letter to Panamco in which FEMSA proposed a combination of Panamco and Coca-Cola FEMSA in a transaction that would value Panamco at $18.00 per share, consisting of $15.31 in cash and 0.119 American Depositary Shares of Coca-Cola FEMSA. In addition, in this proposal, Panamco stockholders would have the option to receive consideration in the form of unlisted voting shares of Coca-Cola FEMSA up to a maximum aggregate amount of 270,750,000 unlisted voting shares. This proposal further contemplated that FEMSA was prepared to discuss opportunities for a continuing role on the board of the combined company in connection with the issuance of these voting shares. FEMSA’s August 27 proposal did not contemplate different treatment of The Coca-Cola Company with respect to its Panamco shares.

      On that date, Mr. Fernández Carbajal called Mr. Woods Staton, in his capacity as a significant stockholder of Panamco and a member of the Panamco board, to inform him of this proposal. Mr. Staton and Mr. Fernández Carbajal discussed the terms of the proposal, including whether FEMSA’s proposal contemplated different consideration between Panamco’s Class A Common Stock and Class B Common

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      In addition, a representative of Allen & Company, who is acting as financial advisor to FEMSA in connection with the merger, contacted a senior executive of The Coca-Cola Company, with FEMSA’s prior authorization, shortly before delivery of FEMSA’s August 27 proposal was made, to inform The Coca-Cola Company of FEMSA’s planned proposal. This contact was made as a courtesy to The Coca-Cola Company, as a significant stockholder of Coca-Cola FEMSA, and in order to avoid any misunderstanding between FEMSA and The Coca-Cola Company regarding the terms of FEMSA’s August 27 proposal.

      During 2002, representatives of Allen & Company engaged in communications with representatives of an affiliate of Venbottling Holdings, Inc., in connection with a matter unrelated to Panamco and Coca-Cola FEMSA in which Allen & Company represented a counterparty engaged in discussions with these representatives. During the course of some of these communications after August 27, 2002, the representatives of Allen & Company occasionally discussed with the representatives of the affiliate of Venbottling Holdings, Inc. the terms of the proposed transaction between Coca-Cola FEMSA and Panamco in order to avoid any misunderstanding regarding the terms of FEMSA’s most recent proposal at the time. No negotiations were conducted during such discussions. Allen & Company was authorized by FEMSA to engage in these discussions.

      At a number of meetings in the first half of September 2002, the Panamco board, together with Panamco’s management, JPMorgan and Panamco’s legal advisors, reviewed the August 27 proposal from FEMSA and Panamco’s strategic alternatives, including the continued implementation of Panamco’s strategic plan. See “Special Factors — Panamco’s Reasons for the Merger and the Recommendation of the Panamco Board” on page 22 for a discussion of the strategic alternatives considered by the Panamco board at this and subsequent meetings. The Panamco board also discussed what role, if any, The Coca-Cola Company should play in the consideration by Panamco of FEMSA’s proposal, particularly in light of the facts that The Coca-Cola Company had a significant equity interest in both Panamco and Coca-Cola FEMSA, that The Coca-Cola Company had designees on the board of directors of Coca-Cola FEMSA as well as on the Panamco board and that the Amended and Restated Investment Agreement among Panamco, The Coca-Cola Company and a subsidiary of The Coca-Cola Company restricted the ability of The Coca-Cola Company to instigate or participate in change of control transactions affecting Panamco. The Panamco board recognized that under the terms of Panamco’s Series C Preferred Stock (all of which is beneficially owned by The Coca-Cola Company), The Coca-Cola Company would have the right to prevent any merger involving Panamco. In light of the substantial equity interest of The Coca-Cola Company in Coca-Cola FEMSA, the Panamco board concluded that the interests of The Coca-Cola Company with respect to Panamco in any combination of Panamco and Coca-Cola FEMSA would relate primarily to its role as franchisor and not to its role as a Panamco stockholder. Accordingly, the Panamco board resolved that Mr. Gary Fayard, who is a director of Panamco and also the chief financial officer of The Coca-Cola Company and was at the time an alternate director of Coca-Cola FEMSA, should not participate in any consideration by the Panamco board of any combination proposal relating to Coca-Cola FEMSA. The Panamco board also resolved that Mr. Henry Schimberg, who is a designee of The Coca-Cola Company to the Panamco board and also Vice-Chairman of Panamco, should not vote on any matter relating to any combination of Panamco with Coca-Cola FEMSA, although the Panamco board determined in light of Mr. Schimberg’s experience in the Coca-Cola bottling industry that his input as an officer of Panamco may be helpful to the Panamco board as it considered Panamco’s alternatives. In connection with the decision of the Panamco board to permit Mr. Schimberg to participate in meetings relating to consideration of FEMSA’s proposal, Panamco and The Coca-Cola Company confirmed that such participation would not constitute a waiver by Panamco of any of its rights under the Investment Agreement and that Mr. Schimberg did not represent The Coca-Cola Company in connection with any consideration by Panamco of a possible business combination with Coca-Cola FEMSA.

      After consideration of FEMSA’s August 27 proposal and in light of Panamco’s other alternatives, on September 18, 2002, the Panamco board rejected FEMSA’s August 27 proposal based on its determination that the consideration offered by FEMSA was too low and the proposal was not in the best interests of

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      On September 27, 2002, FEMSA submitted a revised proposal to Panamco, increasing by $3.00 per share the cash component of its August 27 proposal. Based upon the closing price for the American Depositary Shares of Coca-Cola FEMSA on September 27, 2002, FEMSA’s September 27 proposal offered consideration of $20.58 per Panamco share, of which $18.31 was cash and the remainder was in the form of 0.119 American Depositary Shares of Coca-Cola FEMSA. FEMSA’s September 27 proposal did not contemplate different treatment of The Coca-Cola Company with respect to its Panamco shares. In this proposal, FEMSA stated that its proposal did not preclude a different allocation of the proposed consideration between Panamco’s Class A Common Stock and Panamco’s Class B Common Stock. The September 27 proposal contemplated that FEMSA may consider a further increase in the proposed consideration if negotiations were to move rapidly.

      On October 7, 2002, the FEMSA board met to consider the status of the negotiations and authorized FEMSA, subject to the pending response of Panamco to its proposal of September 27, 2002, to present, if necessary, an improved offer to Panamco and to announce such offer publicly. Certain members of the senior management of Coca-Cola FEMSA were present at the meeting.

      The Panamco board met on October 9, 2002, to consider FEMSA’s September 27 proposal. At this meeting, the Panamco board reviewed the revised FEMSA proposal and Panamco’s strategic alternatives. The Panamco board also discussed with Panamco’s management and with JPMorgan whether the revised FEMSA proposal represented the highest price FEMSA should be willing to pay for Panamco and the appropriate approach to be taken by Panamco in negotiations with FEMSA to have FEMSA increase its price for Panamco. At this meeting, the Panamco board rejected FEMSA’s September 27 proposal, in part because the Panamco board believed that such a rejection would elicit a revised proposal from FEMSA offering higher consideration and in part because the Panamco board also determined once again that the consideration being offered by FEMSA in its September 27 proposal was too low. Mr. Woods Staton reiterated his general preference as a stockholder that Panamco not be sold but indicated that if the rest of the Panamco board believed a transaction was appropriate, he would be prepared to consider a sale so long as the terms of any transaction were agreeable to the holders of Panamco’s Class B Common Stock. The Panamco board also authorized JPMorgan to inform FEMSA that the Panamco board would be willing to negotiate a transaction involving the acquisition of Panamco at a price that was equivalent to $25.00 per Panamco share. At the October 9, 2002 meeting, the Panamco board preliminarily discussed whether a special committee may be necessary or advisable in light of the potential for a different allocation of the proposed consideration between Panamco’s Class A Common Stock and Class B Common Stock.

      As directed by the Panamco board, JPMorgan passed on to FEMSA’s financial advisors the decisions of the Panamco board. FEMSA’s financial advisors inquired about Panamco’s reaction to the statement in FEMSA’s September 27 proposal that it did not preclude a different allocation of the consideration. In response, JPMorgan told FEMSA’s financial advisors that FEMSA’s willingness to consider differential allocation by Panamco of the proposed consideration between Panamco’s Class A Common Stock and Class B Common Stock would be a productive way to proceed.

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      In mid-October, FEMSA’s financial advisors indicated to JPMorgan that FEMSA was considering increasing its offer to acquire Panamco. According to FEMSA’s financial advisors, FEMSA wanted to understand the process the Panamco board would follow in the event of a differential treatment of Panamco’s Class A Common Stock and Class B Common Stock. JPMorgan relayed this to the Panamco board.

      In response to these concerns, Luiz Furlan, Craig Jung and James Postl, being all the Panamco directors who did not have any direct or indirect interest in Panamco’s Class B Common Stock, met separately with Panamco’s legal advisors to discuss the possibility of an acquisition transaction involving Panamco that provided differential treatment for holders of different classes of Panamco’s Common Stock. At this meeting, the three Panamco directors considered their duties to the holders of Panamco’s Class A Common Stock and Class B Common Stock as well as the duties of all the other directors of Panamco in this regard, the rights and obligations of the holders of Panamco’s Class B Common Stock, the rights of the holders of Panamco’s Class A Common Stock and the legal and practical consequences of the fact that all voting power was vested in Panamco’s Class B Common Stock. The three directors noted, based on advice from Panamanian counsel, that the formation of a “special committee” of the Panamco board to represent only the interests of the holders of Panamco’s Class A Common Stock in connection with such a transaction had no basis under Panama law and might not satisfy the legal duties owed by either the members of such committee, or the other Panamco directors, to all Panamco’s stockholders. In this respect, Panamanian counsel had advised the Panamco board that under Panamanian corporate law and in the context of Panamco’s articles of incorporation and by-laws, each and all the directors owe the same duties and responsibilities to all of Panamco’s stockholders, regardless of the class of stock they hold. The three Panamco directors reviewed the relationships of JPMorgan, Cravath, Swaine & Moore (Panamco’s principal outside United States legal counsel) and Arias, Fabrega & Fabrega (Panamco’s principal outside Panamanian legal counsel) with major holders of Panamco’s Class B Common Stock and noted that there were no such relationships that would impair the ability of any of those firms to advise on the appropriateness of such a transaction from the perspective of holders of Panamco’s Class A Common Stock. See “Special Factors — Panamco’s Reasons for the Merger and the Recommendation of the Panamco Board — Matters Relating to the Differential Treatment of Holders of Panamco’s Class A Common Stock and Panamco’s Class B Common Stock” on page 25 for a further discussion of the matters considered by the three directors at this and subsequent meetings. The three Panamco directors also discussed the approach to negotiating with FEMSA that was most likely to maximize the price that FEMSA would pay for Panamco as a whole and also the price that FEMSA would pay for Panamco’s Class A Common Stock. Following these discussions, Messrs. Furlan, Jung and Postl agreed that, if differential treatment of holders of Panamco’s Class A Common Stock and Class B Common Stock were proposed, then (1) the Panamco board, Panamco’s management and JPMorgan should continue to negotiate the aggregate consideration on behalf of all Panamco’s stockholders, (2) the price to be paid per share of Panamco’s Class A Common Stock would have to represent a fair price and be supported by a fairness opinion from JPMorgan, and (3) any such transaction would need to be conditioned upon the approval of a majority of the independent holders of Panamco’s Class A Common Stock. In light of the proposed requirement for approval of the transaction by a majority of the independent holders of Panamco’s Class A Common Stock and the applicable Panamanian law relating to the directors’ duties to all Panamco’s stockholders, the three Panamco directors decided not to propose the formation of a special committee of the Panamco board. This position was relayed by Panamco’s management to the other Panamco directors and by JPMorgan to FEMSA’s financial advisors.

      On October 17, 2002, FEMSA submitted a further revised proposal for the combination of Coca-Cola FEMSA and Panamco at a blended price of $22.50 per Panamco share. In this proposal, stockholders of Panamco (other than The Coca-Cola Company) would have the option of receiving the consideration all in cash or in American Depositary Shares of Coca-Cola FEMSA (up to a maximum of 11,400,000 American Depositary Shares of Coca-Cola FEMSA in the aggregate) with a market value of $22.50 per share, based upon trading prices for the American Depositary Shares of Coca-Cola FEMSA prior to the closing of the transaction. FEMSA’s October 17 proposal indicated that The Coca-Cola Company would be treated differently from the other stockholders of Panamco, but the proposal did not specify the details of such treatment. In connection with its October 17 proposal, FEMSA decided to treat The Coca-Cola Company differently from Panamco’s other stockholders because it would not have been financially feasible for Coca-

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      At the request of FEMSA, a representative of Allen & Company contacted a senior executive at The Coca-Cola Company, shortly before delivery of FEMSA’s October 17 proposal was made, to inform The Coca-Cola Company of FEMSA’s planned proposal. This contact was made as a courtesy to The Coca-Cola Company, as a significant shareholder of Coca-Cola FEMSA, and in order to avoid any misunderstanding between The Coca-Cola Company and FEMSA regarding the terms of FEMSA’s October 17 proposal.

      On October 21, 2002, the Panamco board met to consider FEMSA’s October 17 proposal. The Panamco board, together with Panamco’s management, JPMorgan and Panamco’s legal advisors, reviewed FEMSA’s October 17 proposal and Panamco’s strategic alternatives. The Panamco board also discussed with JPMorgan whether, in JPMorgan’s view, FEMSA would be willing to significantly increase its offer and the most appropriate negotiating approach to be taken by Panamco to maximize the value for Panamco’s stockholders. Based upon this review and discussion, there was some support among the Panamco directors for a combination at this price level. Mr. Woods Staton, in his capacity as a stockholder, indicated to the Panamco board that he would not be willing to agree to support a transaction in which holders of Panamco’s Class B Common Stock received only $22.50 per share. The Panamco board concluded that it would be in the best interests of all Panamco’s stockholders for Panamco to continue to negotiate with FEMSA in an attempt to find a transaction that would be satisfactory to the Panamco board and also to the major holders of Panamco’s Class B Common Stock and that the most desirable next step would be a counter-proposal from Panamco. To that end, the Panamco board requested that Messrs. Furlan, Jung and Postl, advised by JPMorgan and by Panamco’s legal counsel, engage in discussions with Mr. Woods Staton, in his capacity as a stockholder and Voting Trustee, with a view to reaching a specific allocation between Panamco’s Class A Common Stock and Class B Common Stock that those four directors would be willing to recommend to the entire Panamco board.

      Between October 22 and October 25, Messrs. Furlan, Jung and Postl had discussions with each other and with representatives of JPMorgan and engaged in negotiations with Mr. Woods Staton, in his capacity as a stockholder and Voting Trustee. In those discussions, Mr. Staton initially indicated that he expected a price for Panamco’s Class B Common Stock in the range of $45.00 in cash per share. Mr. Staton based this expectation in part on the fact that, in certain transactions in Latin America (all involving Brazilian companies and some staged acquisitions with different classes of shares), very high control premiums had been paid or differential treatment had been offered to holders of equity interests with higher voting power and in part on the fact that Mr. Fernández Carbajal had, in December 2001, suggested a transaction that would have provided a differential of over 100% for his Class B Common Stock. After further negotiations among Messrs. Furlan, Postl and Staton, it was agreed in principle that a transaction in which holders of Panamco’s Class A Common Stock would receive $22.50 in cash per share and holders of Panamco’s Class B Common Stock would receive $40.00 in cash per share (in each case, other than shares beneficially owned by The Coca-Cola Company) would be acceptable to Messrs. Furlan, Jung, Postl and Staton. At a meeting of the Panamco board on October 25, 2002, the entire Panamco board discussed this suggested counter-proposal. JPMorgan advised the Panamco board that, based on JPMorgan’s discussions with FEMSA’s financial advisors, it was highly unlikely that FEMSA would accept the increase in aggregate consideration that would be represented by a $22.50/$40.00 in cash per share counter-proposal. Based on this advice, the Panamco board asked Messrs. Furlan, Jung, Postl and Staton to continue their negotiations with a view to presenting a revised proposal to the Panamco board as soon as possible. The Panamco board also considered the alternatives of cash and stock consideration and rejected the idea of seeking to offer Coca-Cola FEMSA stock to Panamco stockholders, primarily because it concluded that most of Panamco’s stockholders would prefer cash and Coca-Cola FEMSA was not offering enough stock consideration to allow the transaction to qualify

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      Messrs. Furlan, Jung and Postl continued their discussions with each other and with JPMorgan and their negotiations with Mr. Woods Staton. In light of such discussions and negotiations, Messrs. Furlan, Jung and Postl concluded that, subject to receipt of a suitable JPMorgan fairness opinion that the consideration to be paid to the holders, other than The Coca-Cola Company and its subsidiaries, of Panamco’s Class A Common Stock, with respect to such Class A Common Stock, in the proposed merger was fair, from a financial point of view, to such stockholders and approval of a majority of the independent holders of Panamco’s Class A Common Stock voting at a stockholders’ meeting considering such transaction, they would be willing in principle to support a transaction in which holders of Panamco’s Class A Common Stock would receive $22.00 in cash per share and holders of Panamco’s Class B Common Stock would receive $38.00 in cash per share (in each case, other than shares beneficially owned by The Coca-Cola Company), and Mr. Staton indicated that he would be willing in principle to support such a transaction in his capacity as a beneficial owner of Panamco’s Class B Common Stock. In reaching the preliminary allocation of $22.50/$40 and the allocation of $22/$38, the four Panamco directors had the benefit of financial analyses of JPMorgan as to the overall valuation of Panamco (see “Special Factors — Opinion of Panamco’s Financial Advisor” for a summary of those analyses). The actual allocation did not, however, result from those analyses but was the result of a negotiation between Messrs. Furlan, Jung and Postl, on the one hand, who sought to maximize the value for holders of Panamco’s Class A Common Stock while recognizing that the approval of the Voting Trust was necessary for any transaction, and Mr. Woods Staton, on the other hand, as a Voting Trustee, who sought to maximize the value for holders of Panamco’s Class B Common Stock consistent with a fair transaction for all holders of Panamco’s Common Stock. None of the four Panamco directors engaged the services of separate investment advisors.

      On October 24, 2002, senior executives of Panamco met with senior executives of The Coca-Cola Company and discussed the current status of the proposed transaction, including the possibility of differential treatment of holders of different classes of Panamco’s Common Stock and of The Coca-Cola Company. Subsequent to this meeting, a senior executive of The Coca-Cola Company contacted a representative of Allen & Company to express the desire of The Coca-Cola Company, in its capacity as franchisor and not in any other capacity, that any possible transaction between Coca-Cola FEMSA and Panamco proceed on a negotiated basis.

      The Panamco board met on October 28, 2002. The representatives of JPMorgan described the suggested $22.00/$38.00 per share, all cash counter-proposal, and each of Mr. Postl (on behalf of Messrs. Furlan, Jung and Postl) and Mr. Woods Staton, in his capacity as a stockholder and Voting Trustee, indicated that he would be willing in principle to support such a transaction. JPMorgan advised the Panamco board that, although the $22.00/$38.00 per share counter-proposal would represent an increase of approximately $0.35 per share, on a blended basis, over FEMSA’s October 21 proposal, the incremental cost could well be acceptable to FEMSA. The Panamco board then discussed with management and Panamco’s advisors the appropriate approach to negotiating with FEMSA to maximize value for all Panamco’s stockholders. Based upon that discussion, the Panamco board approved an all cash counter-proposal to FEMSA of $22.50 per share for Panamco’s Class A Common Stock and $38.00 per share for Panamco’s Class B Common Stock (in each case, other than shares beneficially owned by The Coca-Cola Company). JPMorgan delivered this counter-proposal to FEMSA’s financial advisors.

      On October 31, 2002, FEMSA’s financial advisors contacted JPMorgan and indicated that FEMSA was increasing its offer by an aggregate of $35 million in cash and eliminating the option of receiving the consideration in American Depositary Shares of Coca-Cola FEMSA (except for amounts payable to The Coca-Cola Company for its Panamco shares). FEMSA’s financial advisors indicated that the offer to The Coca-Cola Company for its Panamco shares would be at a price of $22.00 per share payable in the form of Coca-Cola FEMSA shares. FEMSA proposed this $22.00 value for the stock consideration, rather than a higher value, because FEMSA wanted to limit the dilution of its beneficial ownership of capital stock and

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      On November 1, 2002, the Panamco board met again. JPMorgan explained the terms of the revised FEMSA proposal, that it represented an implicit rejection by FEMSA of the $22.50/$38.00 counterproposal of October 28, 2002, but that it would represent an all cash price of $22.00 per share for Panamco’s Class A Common Stock (excluding shares beneficially owned by The Coca-Cola Company through its subsidiaries), an all cash price of $38.00 per share for Panamco’s Class B Common Stock (excluding shares beneficially owned by The Coca-Cola Company through its subsidiaries) and a price of $22.00 per share, payable in non-traded Coca-Cola FEMSA Series D shares, for Panamco shares beneficially owned by The Coca-Cola Company. On this basis, the Panamco board authorized commencement of negotiations with FEMSA and Coca-Cola FEMSA toward definitive documentation to implement the transaction and the commencement by them of appropriate due diligence in respect of the proposed combination.

      On November 14, 2002, Panamco, FEMSA and Coca-Cola FEMSA executed a confidentiality agreement to permit Coca-Cola FEMSA access to confidential information regarding Panamco. Also on November 14, Panamco and The Coca-Cola Company entered into a consent under the Investment Agreement to permit FEMSA, Coca-Cola FEMSA and The Coca-Cola Company to engage in discussions regarding the terms upon which The Coca-Cola Company might consent to the proposed combination of Panamco and Coca-Cola FEMSA. Upon execution of these agreements, Coca-Cola FEMSA commenced due diligence with respect to Panamco; FEMSA, Coca-Cola FEMSA and The Coca-Cola Company commenced detailed discussions regarding the implications of the proposed combination for The Coca-Cola Company; and the legal advisors to Panamco and Coca-Cola FEMSA began negotiation of the terms of the Merger Agreement and related documentation.

      On November 15, 2002, representatives of Allen & Company met with representatives of The Coca-Cola Company to present the terms of the proposed transaction to The Coca-Cola Company. Allen & Company informed The Coca-Cola Company that the FEMSA proposal contemplated that The Coca-Cola Company would receive merger consideration in the form of unlisted voting stock of Coca-Cola FEMSA and that a value of $22.00 per share would be attributed to each share of Panamco’s stock beneficially owned by The Coca-Cola Company. In addition, The Coca-Cola Company was informed that the proposed subscription value to be attributed to shares of Coca-Cola FEMSA to be delivered to The Coca-Cola Company in connection with the merger was proposed to be based on a market price average for the American Depositary Shares of Coca-Cola FEMSA and that FEMSA proposed to invest approximately $260 million in Coca-Cola FEMSA in connection with the merger on the basis of the same subscription price to be agreed with The Coca-Cola Company. Allen & Company presented to The Coca-Cola Company a preliminary financial analysis of Panamco based on publicly available information. Finally, The Coca-Cola Company was asked to consider providing a $250 million stand-by credit facility to Coca-Cola FEMSA in order to support the operations of the combined company following completion of the merger.

      On December 2, 2002, the Coca-Cola FEMSA board met to discuss the terms of the proposed merger and the status of the negotiations regarding the merger. Designees of The Coca-Cola Company were present at the meeting, and the board was informed that discussions were ongoing with The Coca-Cola Company regarding its support for and participation in the merger.

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      On December 6, 2002, representatives of FEMSA, Coca-Cola FEMSA and Allen & Company met with representatives of The Coca-Cola Company in Atlanta to discuss the proposed transaction. The Coca-Cola Company informed FEMSA that there were a number of operational and business issues regarding the combined company that The Coca-Cola Company wanted to address prior to agreeing to support the merger. Thereafter, The Coca-Cola Company requested that Coca-Cola FEMSA indemnify it for certain risks relating to the transaction and its new investment in Coca-Cola FEMSA. Conversations were subsequently held by representatives of both sides to negotiate these requests. The parties’ understandings regarding these operational and business issues were subsequently memorialized in a memorandum. This memorandum is included as Annex E to this proxy statement. The agreed terms of this indemnity are set forth in The Coca-Cola Company Stockholders Agreement, which is included as Annex B to this proxy statement. See “The Merger Agreement and the Stockholder Agreements — The Stockholder Agreements — The Coca-Cola Company Stockholders Agreement” on page 85 for a discussion of these provisions.

      On December 16, 2002, the Panamco board met to review the status of negotiations regarding the proposed combination. At this meeting, Panamco’s management discussed with the Panamco board the status of Coca-Cola FEMSA’s due diligence, and Panamco’s legal advisors discussed the terms of the Merger Agreement and the documentation necessary to give effect to the proposed combination, which were to include stockholder agreements from the Voting Trust and The Coca-Cola Company, as well as the likely terms of other arrangements with The Coca-Cola Company. With respect to the Merger Agreement, the most significant issue that remained open at this time was related to Coca-Cola FEMSA’s proposed financing for the transaction. The Panamco board discussed with Panamco’s management, JPMorgan and Panamco’s legal advisors the issues for Panamco and its stockholders arising out of the inclusion in the Merger Agreement of a financing condition. At this meeting, JPMorgan’s representatives informed the Panamco board that JPMorgan and JPMorgan Chase Bank, an affiliate of JPMorgan, had been asked by Coca-Cola FEMSA to be parties to the commitment letter to be entered into by Coca-Cola FEMSA in connection with the financing of the proposed transaction. The Panamco board considered, among other things, that the negotiations with Coca-Cola FEMSA relating to the prices to be paid for Panamco’s stock had ended a number of weeks before JPMorgan Chase Bank had been approached by Coca-Cola FEMSA to participate in the financing and that JPMorgan would likely receive higher fees pursuant to its engagement by Panamco than pursuant to its participation in such financing. The Panamco board also noted that it was not subject to any requirement that JPMorgan be unconflicted and that the participation of JPMorgan and JPMorgan Chase Bank in Coca-Cola FEMSA’s financing, due to their strong position in syndicated finance in Latin America, offered greater assurance to the Panamco board that the financing for the proposed transaction would be successfully completed. As a result of these considerations, the Panamco board concluded that JPMorgan’s participation in Coca-Cola FEMSA’s financing arrangements did not impair the independence or advice of JPMorgan and that Panamco should consent to JPMorgan participating in Coca-Cola FEMSA’s financing. Other issues that remained unresolved at this time included the scope of the “material adverse effect” condition and the covenants that would limit the conduct by Panamco of its business prior to closing. At the conclusion of this meeting, the Panamco board authorized management to continue to negotiate the terms of the proposed combination.

      On December 16, 2002, the boards of FEMSA and Coca-Cola FEMSA met separately to review the status of negotiations regarding the proposed combination and findings of the due diligence performed by Coca-Cola FEMSA on Panamco. The FEMSA board was also informed about the status of negotiations with The Coca-Cola Company.

      On December 18, 2002, Messrs. Furlan, Jung and Postl met with Panamco’s legal advisors to discuss the proposed combination. Representatives of Cravath, Swaine & Moore confirmed to the three Panamco directors that the Merger Agreement did provide for a closing condition relating to the approval of the transaction by a majority of the independent holders of Panamco’s Class A Common Stock present at a stockholders’ meeting considering such transaction and that the fairness opinion from JPMorgan relating to the transaction would state that the consideration to be paid to the holders, other than The Coca-Cola Company and its subsidiaries, of Panamco’s Class A Common Stock, with respect to such Class A Common Stock, in the proposed merger was fair, from a financial point of view, to such stockholders. After discussion,

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      On December 19, 2002, the Coca-Cola FEMSA board met again and approved the merger with Panamco. The designees of The Coca-Cola Company to the Coca-Cola FEMSA board abstained from voting on the resolution approving the merger.

      On December 20, 2002, the Panamco board met again. Panamco’s management, together with JPMorgan and Panamco’s legal advisors, updated the Panamco board on the status of discussions with Coca-Cola FEMSA, including the open issues on the Merger Agreement. At this time, the only significant issue that remained unresolved in the Merger Agreement was the scope of the material adverse effect condition. As part of the discussion, JPMorgan presented its financial analysis of the transaction and reviewed again with the Panamco board the various strategic alternatives that had been discussed at prior meetings. The Panamco board also reviewed the terms of the arrangements among FEMSA, Coca-Cola FEMSA and The Coca-Cola Company in connection with the merger. The representatives of JPMorgan delivered JPMorgan’s oral opinion to the Panamco board, confirmed in writing, that, as of December 20, 2002, the consideration to be paid to the holders, other than The Coca-Cola Company and its subsidiaries, of Panamco’s Class A Common Stock, with respect to such Class A Common Stock, in the proposed merger was fair, from a financial point of view, to such stockholders. After further deliberation, the Panamco board approved the Merger Agreement and the merger with Coca-Cola FEMSA and resolved to recommend to Panamco’s stockholders that they vote for approval of the Merger Agreement.

      On December 21, 2002, following up on previous meetings and discussions from time to time relating to the various proposals of Coca-Cola FEMSA, Messrs. Woods Staton and James Gwynn, as Voting Trustees, and certain other principal participants in the Voting Trust had telephonic meetings with Simpson Thacher & Bartlett, United States legal counsel to the Voting Trust, to discuss the principal terms of the Merger Agreement and the Voting Trust Stockholder Agreement pursuant to which these Voting Trust participants agreed to vote in favor of the merger.

      Negotiations with respect to the Merger Agreement continued over the next two days. The Merger Agreement was finalized and executed on December 22, 2002. On the morning of December 23, 2002, Coca-Cola FEMSA and Panamco publicly announced the execution of the Merger Agreement.

Panamco’s Reasons for the Merger and the Recommendation of the Panamco Board

      After careful consideration, the Panamco board has determined that the merger is fair to and in the best interests of Panamco and all its stockholders (other than The Coca-Cola Company and its subsidiaries). The Panamco board recommends that you vote or give instructions to vote “FOR” the proposal to approve the Merger Agreement and the merger.

      The foregoing resolutions were approved unanimously by the Panamco board, with Mr. Gary Fayard not present and Mr. Henry Schimberg abstaining. See “Special Factors — Background of the Merger” on page 14 for a discussion of the reasons for Mr. Fayard’s absence and Mr. Schimberg’s abstention.

      The Panamco board has also determined that the merger is fair to the unaffiliated stockholders of Panamco.

      In considering the recommendation of the Panamco board with respect to the Merger Agreement, you should be aware that the directors and executive officers of Panamco have interests in the merger that are different from, or are in addition to, the interests of Panamco stockholders generally. Other than Mr. Fayard (who was not present), the recommendation of the Panamco board was approved by all Panamco directors who are not also officers or employees of Panamco. See “Special Factors — Interests of Certain Persons in the Merger” on page 50 for a discussion of these interests.

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      In reaching its decision to recommend the merger and the Merger Agreement, the Panamco board considered a wide variety of factors. In light of the complexity of those factors, the Panamco board did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to these specific factors it considered in reaching its decision. In addition, individual members of the Panamco board may have given different weights to different factors. The Panamco board reached its determination to recommend the merger and the Merger Agreement in the absence of the retention of an unaffiliated representative to act solely on behalf of Panamco’s unaffiliated security holders because of the overall impact of the factors noted below that support its determination.

      The Panamco board’s analysis in reaching its determinations with respect to the Merger Agreement and the merger is described in more detail below.

      In this section, we discuss all material factors considered by the Panamco board in favor of the Merger Agreement and the merger.

         The Panamco board believes that the merger is Panamco’s best strategic alternative

      The Panamco board believes that the merger with Coca-Cola FEMSA represents the best strategic alternative available to Panamco and its stockholders. The Panamco board reached this conclusion after reviewing the generally prevailing conditions in the Coca-Cola bottling industry in Latin America and Panamco’s own experience in recent years.

      The Panamco board reviewed a number of possible alternatives to the merger, including:

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      $22.00 per share for Panamco’s Class A Common Stock represents a significant premium

      The Panamco board noted JPMorgan’s analysis (described under “Special Factors — Opinion of Panamco’s Financial Advisor”) that the price of $22.00 per share for Panamco’s Class A Common Stock represented a significant premium to its recent trading performance. In particular, the $22.00 per share price represented:

      The Panamco board noted in its deliberations that the trading price of Panamco’s Class A Common Stock had declined significantly over the preceding twelve months and that the $22.00 per share price represented an 18% premium over the highest closing price during the twelve-month period preceding December 19, 2002. See “ — The Panamco board believes that the merger is Panamco’s best strategic alternative” above for a discussion of the Panamco board’s views relating to the outlook for Panamco’s operations in South America over the short term. The Panamco board believes that the premium offered constitutes a compelling reason for the transaction.

      As part of its deliberations, the Panamco board requested the advice of JPMorgan, its financial advisor, regarding the merger. In its deliberations, the Panamco board considered the financial analyses presented to it by JPMorgan, as well as the oral opinion of JPMorgan, confirmed in writing, delivered on December 20, 2002, to the effect that as of December 20, 2002, the consideration to be paid to the holders, other than The Coca-Cola Company and its subsidiaries, of Panamco’s Class A Common Stock, with respect to such Class A Common Stock, in the proposed merger was fair, from a financial point of view, to such stockholders. See “Special Factors — Opinion of Panamco’s Financial Advisor” on page 28 for a summary of JPMorgan’s opinion and analyses.

      In relying upon JPMorgan’s analyses and opinion, the Panamco board was aware of the contingent nature of JPMorgan’s fee arrangement with Panamco (see “Special Factors — Opinion of Panamco’s Financial Advisor” for a discussion of JPMorgan’s fee). The Panamco board believed that the amount of the contingent

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      In addition, the Panamco board also considered the fact that JPMorgan Chase Bank and JPMorgan were expected to be parties to the commitment letter entered into by Coca-Cola FEMSA to finance the transaction, and discussed JPMorgan’s qualifications and independence from FEMSA and Coca-Cola FEMSA. The Panamco board considered multiple factors before concluding that JPMorgan’s relationship with Coca-Cola FEMSA and FEMSA did not impair the ability of the Panamco board to rely on the opinion and advice of JPMorgan. For a discussion of the factors considered by the Panamco board, see “Background of the Merger” on page 20.

Matters Relating to the Differential Treatment of The Coca-Cola Company

      In reaching its determination to approve the merger, the Panamco board noted that The Coca-Cola Company was being treated differently in the merger from the other stockholders of Panamco. The Coca-Cola Company and its subsidiaries are receiving stock consideration in the merger in contrast to the other stockholders of Panamco who are receiving all-cash consideration. See “Special Factors — Arrangements with The Coca-Cola Company — Merger Arrangements and Proposed New Operational Arrangements” on page 58 for a discussion of the arrangements with The Coca-Cola Company entered into in connection with the merger. The Panamco board determined to approve the Merger Agreement and the merger, notwithstanding the differential treatment of The Coca-Cola Company, for the following reasons.

      The Panamco board concluded that the $22.00 per share for Panamco’s Class A Common Stock and $38.00 per share for Panamco’s Class B Common Stock, to be received by all Panamco’s stockholders other than subsidiaries of The Coca-Cola Company, was fair to those other stockholders, for the reasons discussed above under the heading “ — Factors Supporting the Merger.”

      The merger requires approval by stockholders of Panamco that are not affiliated with The Coca-Cola Company. The Panamco board noted that the Voting Trust, which is the largest single holder of Panamco’s Class B Common Stock, and Venbottling Holdings, Inc., one of the largest stockholders of Panamco after The Coca-Cola Company, fully supported the transaction. In addition, the Panamco board noted that the transaction was conditioned upon the approval of a majority of the independent holders of Panamco’s Class A Common Stock present at a stockholders’ meeting considering such transaction.

      The Panamco board noted that the notional value of the consideration to be received by The Coca-Cola Company as a consequence of the merger was $22.00 per Panamco share, including $22.00 per share of Panamco’s Class B Common Stock beneficially owned by The Coca-Cola Company. This represented a lower price per share for Panamco’s Class B Common Stock than that to be received by other holders of both Panamco’s Class A Common Stock and Class B Common Stock.

      The Panamco board also noted that the Coca-Cola FEMSA Series D shares to be received by The Coca-Cola Company as a consequence of the merger were not traded on any active securities market and thus would not be attractive to most Panamco stockholders. In addition, the Panamco board noted that those shares would be valued based upon the trading prices for American Depositary Shares of Coca-Cola FEMSA prior to the announcement of the transaction, which would result in The Cola-Cola Company being exposed to downward movements in the trading prices for Coca-Cola FEMSA’s shares in the period of time prior to closing.

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      The Panamco board reviewed the terms of the other arrangements between The Coca-Cola Company, FEMSA and Coca-Cola FEMSA to be entered into in connection with the transaction, which were memorialized in a memorandum attached to this proxy statement as Annex E and summarized under “Arrangements with The Coca-Cola Company — Merger Arrangements and Proposed New Operational Arrangements” on page 58. The Panamco board evaluated the terms of these arrangements, individually and in their entirety, from the perspective of whether they would represent a transfer of value to The Coca-Cola Company, and the Panamco board concluded that none of these arrangements would likely represent a significant financial benefit to The Coca-Cola Company.

      The Panamco board believed that the potential benefits to The Coca-Cola Company are derived not from the terms of the merger or the other arrangements memorialized in Annex E, but rather, in The Coca-Cola Company’s capacity as franchisor, from the overall strengthening of the Coca-Cola bottling system in Latin America.

Matters Relating to the Differential Treatment of Holders of Panamco’s Class A Common Stock and Panamco’s Class B Common Stock

      In reaching its decision to recommend the Merger Agreement and the merger, the Panamco board took into consideration the fact that the holders of Panamco’s Class A Common Stock would receive $22.00 per share and holders of Panamco’s Class B Common Stock would receive $38.00 per share (in each case, other than The Coca-Cola Company and its subsidiaries). Notwithstanding this differential treatment, the Panamco board unanimously recommends to Panamco’s stockholders that they approve the Merger Agreement and the merger. In reaching their decision to recommend the Merger Agreement to Panamco’s stockholders, Messrs. Furlan, Jung and Postl, being the members of the Panamco board who did not directly or indirectly have any interest in Panamco’s Class B Common Stock, took into account the following factors.

      Messrs. Furlan, Jung and Postl concluded that $22.00 per share for holders of Panamco’s Class A Common Stock represented a fair price for those holders, particularly in light of Panamco’s strategic alternatives, for the reasons discussed above under the heading “— Factors Supporting the Merger.” Messrs. Furlan, Jung and Postl noted in particular that JPMorgan was delivering an opinion that the consideration to be paid to the holders, other than The Coca-Cola Company and its subsidiaries, of Panamco’s Class A Common Stock, with respect to such Class A Common Stock, in the proposed merger was fair, from a financial point of view, to such stockholders. Messrs. Furlan, Jung and Postl also noted that the blended price of approximately $22.85 per share being attributed to all shares of Panamco’s Common Stock (on a diluted basis) represented less than a 4% premium to the price of $22.00 per share being received by holders of Panamco’s Class A Common Stock.

      Messrs. Furlan, Jung and Postl noted that, under Panamco’s articles of incorporation, holders of Panamco’s Class A Common Stock had no right to vote on the merger and that there was not any limit under applicable Panamanian law on the ability of holders of Panamco’s Class B Common Stock to approve a merger transaction in which classes of shares were treated differently. Messrs. Furlan, Jung and Postl recognized that the approval of the major holders of Panamco’s Class B Common Stock was essential to implementation of the transaction and, based upon their own direct negotiations with representatives of the Voting Trust, that it was unlikely that those holders could have been persuaded to accept a price less than $38.00 per share. Messrs. Furlan, Jung and Postl also noted that Coca-Cola FEMSA required certain significant beneficial owners of Panamco’s Class B Common Stock to enter into agreements in support of the proposed transaction as a condition of such proposed transaction.

      Messrs. Furlan, Jung and Postl also recognized that the Panamco board has the ability, under Panamco’s articles of incorporation, to cause the conversion of Panamco’s Class B Common Stock into Class A

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     Stockholder approval

      Messrs. Furlan, Jung and Postl noted that the completion of the transaction was conditioned upon the approval of a majority of the independent holders of Panamco’s Class A Common Stock present at a stockholders’ meeting considering such transaction.

Material Negative Factors

      In addition to the matters described above, the Panamco board considered a number of negative factors with respect to the proposed merger and the Merger Agreement. However, the Panamco board determined that the negative factors were outweighed by the potential benefits to Panamco’s stockholders from the merger, as described above.

      The material negative factors considered by the Panamco board were as follows.

      The completion of the merger is conditioned upon receipt by Coca-Cola FEMSA of financing and of confirmation that its final foreign currency debt ratings would be at least at certain specified levels, with a stable outlook. The Panamco board recognized that the satisfaction of the ratings condition was also a condition to the receipt of financing by Coca-Cola FEMSA from its lenders and the financing and ratings conditions created an undesirable level of contingency with respect to the proposed transaction. The Panamco board concluded, however, based upon discussions with Panamco’s management, JPMorgan and Panamco’s legal advisors, that it was very unlikely that Coca-Cola FEMSA would agree to the merger, at this price, without a financing condition and the related ratings condition. The Panamco board noted, in connection with the ratings condition, that the preliminary indications from the relevant ratings agencies, based on Coca-Cola FEMSA’s discussions with them, had been affirmative that satisfactory ratings would be obtained. The Panamco board also noted that, under certain circumstances, Coca-Cola FEMSA would be required to pay a break-up fee, including potential reimbursement of expenses, of up to $140,000,000 to Panamco if the proposed merger failed for lack of financing. The Panamco board also considered the strength of JPMorgan Chase Bank and Morgan Stanley Senior Funding, the lead lenders to Coca-Cola FEMSA, and the reputational issues for those two institutions should they fail to deliver financing to Coca-Cola FEMSA. See “Special Factors — Financing of the Merger” on page 60 for a discussion of Coca-Cola FEMSA’s financing and see “The Merger Agreement and the Stockholder Agreements — The Merger Agreement” on page 72 for a discussion of Coca-Cola FEMSA’s break-up fee.

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      The Panamco board considered that the Merger Agreement contained a “material adverse effect” condition that introduced a further level of contingency to the transaction. The Panamco board recognized that such condition did not contain absolute exclusions for continuing adverse political developments in Venezuela. At the time the Merger Agreement was signed, the Venezuelan general strike was continuing, and the Panamco board concluded that it would be difficult for Coca-Cola FEMSA and its lenders to accept the risk of a further deterioration in Venezuela. The Panamco board determined, however, that it was more likely than not that the situation in Venezuela would not deteriorate further after the signing of the Merger Agreement and would perhaps improve by the time of the closing. The Panamco board also noted that the Venezuelan operations were projected to represent a small fraction of Panamco’s cash operating profit for 2003 and, as a result, negative developments affecting the Venezuelan operations would be unlikely to have a “material adverse effect” on Panamco, taken as a whole. See “The Merger Agreement and the Stockholder Agreements — The Merger Agreement” on pages 75-76 for a discussion of the “material adverse effect” condition in the Merger Agreement.

      The Panamco board discussed at length the risks to Panamco should the proposed merger with Coca-Cola FEMSA be announced but not be completed for any reason. These risks included, but were not limited to, the fluctuations that would be caused in the market price of Panamco’s Class A Common Stock, potential loss of employees, potential short-term loss of management focus, potential loss of acquisition opportunities and the disruption to the conduct of Panamco’s business. The Panamco board discussed the principal conditions to the merger, including the financing and “material adverse effect” conditions described above, and the covenants restricting the ability of Panamco to conduct its business in the ordinary course between signing and closing.

Other Considerations

      In addition to the matters described above, the Panamco board considered the following factors in evaluating the merger:

      In evaluating the fairness of the merger, the Panamco board did not consider the following:

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Opinion of Panamco’s Financial Advisor

      Pursuant to an engagement letter dated September 9, 2002, Panamco retained JPMorgan as its exclusive financial advisor in connection with Panamco’s consideration of any proposed combination with Coca-Cola FEMSA, as well as various other potential acquisitions and dispositions by Panamco.

      At the meeting of the Panamco board on December 20, 2002, JPMorgan rendered its oral opinion, confirmed in writing, to the Panamco board that, as of such date, the consideration to be paid to the holders, other than The Coca-Cola Company and its subsidiaries, of Panamco’s Class A Common Stock, with respect to such Class A Common Stock, in the proposed merger was fair, from a financial point of view, to such stockholders. To the extent that a stockholder, other than The Coca-Cola Company and its subsidiaries, has a relationship with Panamco apart from ownership of Panamco’s Class A Common Stock (for example, a stockholder who may be an affiliate of Panamco by virtue of owning a majority of Panamco’s Class B Common Stock), the opinion of JPMorgan with respect to the consideration to be paid to that stockholder relates only to the consideration to be paid for the stockholder’s shares of Panamco’s Class A Common Stock. No limitations were imposed by Panamco’s board upon JPMorgan with respect to the investigations made or procedures followed by it in rendering its opinion.

      The full text of the written opinion of JPMorgan dated December 20, 2002, which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Annex D to this proxy statement and is incorporated herein by reference. The holders of Panamco’s Class A Common Stock are urged to read the opinion in its entirety. JPMorgan’s written opinion is addressed to the Panamco board, is directed only to the consideration to be paid to the holders, other than The Coca-Cola Company and its subsidiaries, of Panamco’s Class A Common Stock, with respect to such Class A Common Stock, in the merger and does not constitute a recommendation to any stockholder of Panamco as to how such stockholder should vote at the special meeting. The summary of the opinion of JPMorgan set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion.

      In arriving at its opinion, JPMorgan, among other things:

      JPMorgan also held discussions with certain members of the management of Panamco and with the financial advisors to Coca-Cola FEMSA with respect to certain aspects of the merger, and the past and current business operations of Panamco, the financial condition and future prospects and operations of Panamco, and certain other matters JPMorgan believed necessary or appropriate to its inquiry.

      JPMorgan relied upon and assumed, without independent verification, the accuracy and completeness of all information that was publicly available or that was furnished to it by Panamco or Coca-Cola FEMSA or otherwise reviewed by JPMorgan, and JPMorgan has not assumed any responsibility or liability for such information. JPMorgan did not conduct any valuation or appraisal of any assets or liabilities, nor were any

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      The projections furnished to JPMorgan for Panamco were prepared by the management of Panamco. See “Special Factors — Certain Prospective Financial Information” on page 35 for a discussion of these projections. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such projections.

      JPMorgan’s opinion is based on economic, market and other conditions as in effect on, and the information made available to JPMorgan as of, the date of such opinion. Subsequent developments may affect the written opinion dated December 20, 2002, and JPMorgan does not have any obligation to update, revise, or reaffirm such opinion. JPMorgan’s opinion is limited to the fairness, from a financial point of view, of the consideration to be received by the holders, other than The Coca-Cola Company and its subsidiaries, of Panamco’s Class A Common Stock in the proposed merger, with respect to such Class A Common Stock, and JPMorgan has expressed no opinion as to the fairness of the consideration to be received by any other holder of the stock of Panamco or the underlying decision by Panamco to engage in the merger. JPMorgan expressed no opinion as to the price at which Panamco’s Common Stock will trade at any future time.

      JPMorgan was not authorized to and did not solicit any expressions of interest from any other parties with respect to the sale of all or any part of Panamco or any other alternative transaction. Consequently, JPMorgan has expressed no opinion whether any alternative transaction might produce consideration for the holders of Panamco’s Class A Common Stock in an amount in excess of that contemplated in the merger.

      In accordance with customary investment banking practice, JPMorgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses used by JPMorgan in connection with providing its opinion.

Discounted Cash Flow Analysis

      JPMorgan conducted a discounted cash flow analysis for the purpose of determining the fully diluted equity value per share of Panamco’s Common Stock. JPMorgan calculated the unlevered free cash flows, that is, the cash flows prior to any deductions for debt repayment and interest expense, but after giving effect to estimated taxes, capital expenditures and changes to net working capital, that Panamco is expected to generate during 2003 through 2012 based upon financial projections prepared by the management of Panamco. JPMorgan also calculated a range of terminal asset values at the end of the forecast period, namely the end of 2012, by applying a cash operating profit exit multiple ranging from 4.0x to 6.0x to the estimated 2012 cash operating profit of Panamco. This range of cash operating profit exit multiples is based on a median enterprise value to 2003 EBITDA (earnings before interest, taxes, depreciation and amortization) for other selected Latin American bottlers of 5.3x. Panamco’s comparable multiple was 4.4x. The unlevered free cash flows and the range of terminal asset values were then discounted to present values using a range of discount rates from 11.3% to 13.3%. This discount rate range represents an increase and a decrease of

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      Based on the management projections and a discount rate of 12.3%, before taking account of any potential synergies between Panamco and Coca-Cola FEMSA, the discounted cash flow analysis, which was based on the present value of the unlevered free cash flows expected during 2003 through 2012 and a terminal asset value based on the application of a cash operating profit exit multiple range of 4.0x to 6.0x to the estimated 2012 cash operating profit of Panamco, indicated a range of implied equity values of between $17.55 and $22.42 per share of Panamco’s Common Stock on a fully diluted basis. Panamco management represented to JPMorgan that it estimated the potential annual synergies that could result from sharing certain functions between Panamco and Coca-Cola FEMSA to be approximately $70 million. To illustrate, if 50% of the estimated $70 million potential annual synergies are taken into account, the discounted cash flow analysis indicated a range of implied equity values of between $19.01 and $24.07 per share of Panamco’s Common Stock on a fully diluted basis.

      Throughout its analysis, JPMorgan calculated the fully diluted value per share of Panamco’s Common Stock on the basis of 122 million outstanding shares, without taking account of the lack of voting rights attributable to Panamco’s Class A Common Stock.

Present Value of the Illustrative Theoretical Future Stock Price

      JPMorgan conducted an analysis of the present value of the theoretical future price per share of Panamco’s Common Stock, based on the assumption that all management projections are met, for the purpose of determining the fully diluted equity value per share of Panamco’s Common Stock. JPMorgan calculated the implied enterprise value of Panamco based on multiples ranging from 4.5x to 6.5x of the expected 2004, 2005 and 2006 cash operating profit based upon financial projections prepared by the management of Panamco. This multiple range was based on the median 2003 estimated enterprise value to EBITDA multiple of 5.3x for other selected Latin American bottlers, adjusted upwards and downwards to illustrate the sensitivity of an increase or decrease in the multiple on the implied per share equity values. The multiple range also reflects a potential multiple expansion for Panamco in the event that Panamco achieves management’s anticipated improvement in its operating performance over the period 2003 to 2005. Panamco’s enterprise value to 2003 estimated cash operating profit multiple was 4.4x based on its share price as of December 19, 2002. JPMorgan then calculated the implied equity value for 2003, 2004 and 2005 by adjusting the respective enterprise value of Panamco for each year by its estimated debt, net of cash and cash equivalents, plus minority interest at the end of such year based on the projections prepared by the management of Panamco. The 2003, 2004 and 2005 equity values were then discounted to present values using a range of discount rates from 13.5% to 14.5%, which were calculated assuming various decreases and increases from Panamco’s estimated cost of equity of 14.2%. Such cost of equity was calculated using the capital asset pricing model for U.S. companies, adjusted by a weighted country risk premium to account for the additional risk of the sovereign debt securities of Latin American countries when compared to U.S. Government securities. The discount rate range was selected to illustrate the sensitivities of the present value of the illustrative stock prices due to potential fluctuations in the equity discount rate.

      Based on the management projections and an equity discount rate of 14.0%, the present value of the 2005 theoretical future stock price indicated a range of implied equity values of between $15.64 and $19.15 per share of Panamco’s Common Stock on a fully diluted basis, which were derived from the $2,147 million to $2,576 million present value of the 2005 implied enterprise value range.

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Illustrative Break-Up Value

      JPMorgan conducted an illustrative break-up analysis for the purpose of determining the fully diluted equity value per share of Panamco’s Common Stock. JPMorgan calculated the implied enterprise values of Panamco’s operating territories based on the multiples of 7.0x to 8.0x the estimated 2003 cash operating profit in the Mexican and Central American territories and based on the amounts of $1.33 to $1.67 per estimated unit case sale in the South American territories for 2003. The 7.0x to 8.0x multiple range was based on the median multiple of 7.4x for selected prior transactions in the Latin American bottling sector. The $1.33 to $1.67 unit case sale range for the South American territories was estimated based on the low end of per unit case sale values from selected prior transactions in the Latin American bottling sector. JPMorgan used the low end of such range due to the depressed macroeconomic state and, in certain cases, unstable political situation in the South American countries of Panamco’s operations at the time of the analysis, as well as the higher cost of capital of investing in South American countries at the time compared to the corresponding cost of capital when such comparable prior transactions were announced. Estimated cash operating profits and estimated unit case sales volumes for 2003 were based upon financial projections prepared by the management of Panamco.

      Using the cash operating multiples and unit case sale prices noted above, the illustrative break-up value analysis, exclusive of any potential tax consequences, the expenses from any potential sale and any adjustment for the time value of money to take account of the fact that a theoretical break-up sale of Panamco would likely take some time, resulted in an implied combined enterprise value for all of Panamco’s operations of between $3,342 million and $3,918 million and an implied combined equity value of Panamco of between $2,492 million and $3,069 million. The illustrative break-up analysis also indicated a range of implied equity values of between $20.43 and $25.15 per share of Panamco’s Common Stock on a fully diluted basis. In this analysis, although JPMorgan provided a theoretical valuation of the Mexican, Central American and South American businesses of Panamco, JPMorgan did not express any view as to whether any of or all those businesses could in fact be sold at the indicated values.

Public Trading Multiples

      Using publicly available information, JPMorgan compared selected financial data of Panamco with similar data for selected publicly traded companies engaged in businesses that JPMorgan judged to be analogous to the businesses of Panamco. The companies selected by JPMorgan were:

These companies were selected, among other reasons, because of their operational and business similarities with Panamco, although no bottler operates in all of the territories in which Panamco operates. For each comparable company, JPMorgan used estimates of their respective financial results for 2002 and 2003 published in publicly available analyst research reports. JPMorgan derived the mean and the median value for each of the following for 2002 and 2003: enterprise value divided by estimated unit case sales volume; enterprise value divided by estimated revenues; and enterprise value divided by either estimated cash operating profit or, if not available, EBITDA. For purposes of this analysis, JPMorgan calculated the

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