AB InBev Seals $20 Billion Modelo Purchase to Gain Corona

Anheuser-Busch InBev NV (ABI), the world’s biggest brewer, will place Corona Extra alongside Budweiser after it agreed to acquire the remaining 50 percent of Corona maker Grupo Modelo SAB for $20.1 billion in cash.

Corona Extra, the U.S.’s largest imported beer, will become a global flagship brand of the Leuven, Belgium-based company, a status currently reserved for Budweiser alone, AB InBev Chief Executive Officer Carlos Brito said today on a conference call. The deal is the second-biggest announced this year after Glencore International Plc’s offer for Xstrata Plc.

The acquisition of Modelo, based in Mexico City, speeds the brewer’s push into faster-growing developing countries as high unemployment and sluggish economies restrain sales in Europe and North America. AB InBev said its global distribution network will provide “meaningful opportunities” to push Corona into markets outside of the U.S. and Mexico. Combining the businesses will also save about $600 million a year, it estimated.

“The deal makes compelling strategic sense,” said Dirk Van Vlaanderen, an analyst at Jefferies International. “Adding the Corona brand to ABI’s existing global beer brand portfolio will continue to strengthen the company’s global category leadership.” Van Vlaanderen has a buy rating on the stock.

In a related deal, Constellation Brands Inc. (STZ) will pay $1.85 billion for Modelo’s 50 percent stake in Crown Imports LLC, a company they own jointly which distributes Corona in the U.S. Constellation’s stock surged 24 percent in New York.

Acquisition Multiple

AB InBev rose 3.9 percent to 61.30 euros as of the 5:30 p.m. close of trading in Brussels. Modelo gained 0.2 percent to 117.96 pesos in Mexico City, giving the brewer a market value of about 381.7 billion pesos ($28.6 billion). The stock rose 19 percent on June 25, when the companies announced they were in talks, and has advanced 33 percent this year.

AB InBev already owns a non-controlling 50 percent stake in Modelo, which it gained when InBev NV bought Anheuser-Busch Cos. in 2008 for $52 billion in the biggest brewing deal ever.

The acquisition price represents a multiple of about 16.2 times earnings before interest, tax, depreciation and amortization, according to Melissa Earlam, an analyst at UBS AG. That compares with an average multiple of 12.3 times historic Ebitda for similar deals since 1999, according to UBS estimates.

“The deal is at the high end of the expected price range,” Gerard Rijk, an analyst at ING Groep NV in Amsterdam, wrote today in an e-mail. “It’s a bit disappointing.”

Mexican Battle

The combined company will sell 400 million hectoliters (10.5 billion gallons) of beer annually and have revenue this year of about $47 billion, according to AB InBev, which has been built up through a series of takeovers to create a company with brands including Stella Artois and Beck’s.

The acquisition pits the world’s biggest brewer against the No. 3, Heineken NV (HEIA), in Mexico. Between them, the companies will control almost all of the country’s beer market after Amsterdam- based Heineken bought the brewing business of Fomento Economico Mexicano SAB in a deal valued at $7.7 billion in 2010. Modelo’s Mexican market share is about 60 percent, according to Lauren Torres, an analyst at HSBC Holdings Plc, and Heineken has most of the rest, with brands such as Dos Equis and Tecate.

“The biggest loser in all of this is Heineken, who now face a leaner, meaner AB InBev in Mexico,” Anthony Bucalo, an analyst at Santander in London, wrote today.

Antitrust Process

AB InBev isn’t the only brewer expanding into new markets. SABMiller (SAB) Plc, the world’s second-biggest beermaker by volume, agreed to buy Foster’s Group Ltd. in Australia last year for about A$10.5 billion ($10.7 billion). Brewing assets in attractive markets are in short supply as beer makers buy each other to chase sales growth and fend off would-be suitors.

“The big asset that was sitting out there was Modelo (GMODELOC),” said Santander’s Bucalo.

The Modelo transaction is subject to regulatory approvals, AB InBev said, and the brewer will “work proactively with regulators to move through the review process efficiently.”

The sale to Constellation of Modelo’s 50 percent share in Crown Imports means AB InBev probably won’t need to sell any U.S. brands to satisfy regulators, Richard O’Donovan, an analyst at Davy Research, said in a note.

AB InBev’s U.S. market share would have been 53.4 percent had it purchased Crown, creating a potential antitrust “stumbling block,” UBS’s Earlam wrote June 26.

‘Proud Heritage’

The Modelo takeover, which the companies expect to close during the first quarter of 2013, “will bring our brands and proud heritage to even more consumers internationally while offering an increasing number of AB InBev’s brands in Mexico,” Modelo CEO Carlos Fernandez, who will step down after the deal is completed, said in today’s statement.

Modelo, which was advised on the transaction by Morgan Stanley, will keep its Mexico City headquarters and Fernandez will continue to “play an important role” in running the business, along with Vice Chairman Maria Asuncion Aramburuzabala and Vice President Valentin Diez Morodo, the companies said. Aramburuzabala and Diez Morodo will join AB InBev’s board, according to a person with knowledge of the matter, and have committed to invest $1.5 billion in AB InBev shares.

Mexican families including that of Fernandez own a majority of a holding company that controls Modelo.

Company Backers

AB InBev is part-owned by a group of Brazilian investors including billionaire Jorge Paulo Lemann, Marcel Herrmann Telles and Carlos Alberto da Veiga Sicupira, who sit on the board. Three Belgian families, who founded the former Interbrew SA, also have a stake in the brewer and have board representatives.

The Budweiser maker has taken on an additional $14 billion of bank debt to fund the transaction, it said. The company, which was advised by Lazard Ltd., expects its ratio of net debt- to-adjusted Ebitda to be less than two times in 2014.

The Belgian brewer has cut debt from the Anheuser-Busch deal and in April agreed to buy control of the Dominican Republic’s Cerveceria Nacional Dominicana for $1.24 billion.

The sale of Modelo’s stake in Crown Imports to Constellation is expected to complete in the first quarter of 2013, the companies said. Constellation will become the sole distributor of Modelo brands in the U.S. AB InBev will have the right to exercise a call option on the brands every 10 years.

Constellation Brands shares jumped 24 percent to $27.06 at 4:02 p.m. in New York trading.

Today’s deal may dampen speculation that AB InBev will seek to combine with its nearest competitor, SABMiller. SABMiller shares fell in London trading on June 25 after it was reported that AB InBev was in talks to buy Modelo. Liberum Capital cut its recommendation on the shares to sell from hold on the grounds that speculation of a bid from AB InBev may fade.

“The much-mooted SABMiller-AB InBev merger is now off the table for a number of years,” Davy’s O’Donovan said.

To contact the reporters on this story: Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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