UPDATE 1-Coca-Cola Femsa, Heineken reach deal over distribution in Brazil

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(Adds context, information on terms of deal)

RIO DE JANEIRO, Feb 24 (Reuters) - Mexican Coke bottler Coca-Cola Femsa said on Wednesday that it had reached an agreement with Heineken NV over distribution in Brazil, a move that clears a significant legal hurdle for the Dutch brewer's expansion in the South American nation.

The agreement is slated to be implemented in the middle of 2021, the company added in a statement, and will last through 2026.

Heineken has expanded significantly in Brazil in recent years, where it is competing fiercely against national giant Ambev SA.

An arbitral dispute with Femsa had proved an enduring issue, however. Heineken has wanted for years to terminate its distribution contract with Femsa in order to build out a distribution network it acquired from Kirin Holdings Co Ltd in 2017.

"The redesign of the distribution agreement between the Coca-Cola system and Heineken in Brazil is an important milestone," said John Santa Maria Otazua, chief executive officer of Coca-Cola Femsa.

According to the terms of the deal, Heineken will begin to distribute its eponymous Heineken and Amstel beer brands via its in-house distribution channels, while the Femsa network will continue distributing the Kaiser, Bavaria and Sol brands.

The financial terms of the deal were not revealed. (Reporting by Gram Slattery in Rio de Janeiro and Laura Gottesdiener in Monterrey, Mexico; Editing by Christopher Cushing)