AB InBev Deal for Modelo Said Valued at $20 Billion

Anheuser-Busch InBev NV may spend about $20 billion buying the half of Grupo Modelo SAB it doesn’t already own, according to a person with knowledge of the matter.

That’s the enterprise value for the transaction and would include a premium for the Corona maker as well as a payment to Constellation Brands Inc. to buy a stake in a distribution joint venture, said the person, who declined to be identified because the matter is private. AB InBev and Modelo confirmed the talks in statements today.

“This deal would mean the biggest step forward since the Anheuser-Busch transaction in 2008, creating new growth opportunities and making one of the best and strongest consumer-goods companies even stronger,” Marc Leemans, an analyst at Banque Degroof SA in Brussels, said in a note.

AB InBev, based in Leuven, Belgium, gained a non-controlling 50 percent stake in Modelo when InBev NV bought Bud Lite brewer Anheuser-Busch Cos. in 2008 for $52 billion, the biggest brewing deal ever. Brewers are among consumer-goods companies looking to expand outside of Europe as high unemployment and sluggish economies hold back growth.

The Wall Street Journal reported yesterday that the companies were close to a deal.

Constellation Brands

Modelo shares rose 14 percent to 112 pesos at 1:03 p.m., after earlier gaining as much as 17 percent, the biggest intraday advance since Feb. 17, 1994. The company’s market value climbed to about 362.4 billion pesos ($26 billion). AB InBev rose 2 percent to 56.75 euros at the close in Brussels.

“These talks might or might not lead to a consummation of a transaction and any speculation on the terms and conditions is premature,” Grupo Modelo, Mexico’s largest brewer, said in a statement to the Mexican stock exchange. AB InBev, the world’s largest brewer, confirmed the discussions separately.

The purchase may be announced as soon as this week, according to the person, who asked not to be identified as the discussions are confidential. The deal isn’t completed and may still fall through, the person said.

If AB InBev acquires the Modelo stake, the Mexican company would have to pay Constellation Brands about $1.7 billion to gain control of their joint venture to import beer into the U.S., said analysts at Credit Suisse including Charlie Mills in London. The venture expires at the end of 2016 and it states that Modelo can notify Constellation of its desire to purchase their stake at any point until the end of 2013, a Credit Suisse note said. Constellation shares rose as much as 14 percent in New York today.

Musical Chairs

An acquisition of the rest of Modelo by AB InBev would mean “the strong one becomes even stronger,” said Mikihiko Yamato, deputy head of research for JI Asia in Tokyo. “It’s like musical chairs, and the good deals are taken by strong ones first, and there is not much left for the rest.”

Modelo had sought to prevent Anheuser-Busch from selling its stake to InBev as part of the 2008 merger that also gave AB InBev nine of Modelo’s 19 board seats. At the time of the transaction, Modelo Chief Executive Officer Carlos Fernandez said that his company was interested in buying back Anheuser-Busch’s non-controlling stake, which the Budweiser-maker bought in the 1990s.

In July 2010, Modelo lost an arbitration bid to deny board seats to some AB InBev directors. Modelo has expanded in the U.S. and in other countries without using AB InBev’s distribution network.

‘Next Big Step’

Modelo’s market value gives it a price-to-earnings ratio of about 28.7, according to data compiled by Bloomberg. That compares with an average of 26.3 for peers in the industry. Japan’s Kirin Holdings Co.’s ratio is almost 121, while Heineken NV, which competes with Modelo in Mexico after buying Fomento Economico Mexicano SAB’s brewing unit in 2010, trades at almost 28 times earnings, the data shows.

“Modelo is the next best step AB InBev should make,” Gerard Rijk, an analyst at ING Groep NV in Amsterdam, wrote yesterday in an e-mail, saying it allows the company to profit from cost-cutting.

AB InBev has been formed by a series of takeovers to create a company with brands including Beck’s, Bass, Labatt Blue and Stella Artois.

The company has cut debt from the Anheuser-Busch deal and agreed to buy control of Cerveceria Nacional Dominicana for $1.24 billion in April, boosting its expansion with the addition of the Dominican Republic’s biggest beermaker.

SABMiller Plc, the world’s second-biggest brewer by volume, agreed to buy Foster’s Group Ltd. in Australia last year for about A$10.5 billion ($10.53 billion).

Pablo Zuanic, an analyst at Liberum Capital in London, today cut SABMiller to sell from hold on the grounds that speculation of a bid from AB InBev may fade.

SABMiller dropped as much as 2.2 percent in London trading and was down 1.7 percent at 2,460.5 pence at 4:25 p.m.

(Credit Suisse corrects figure to $1.7 billion in ninth paragraph of story published June 25.)
Before it's here, it's on the Bloomberg Terminal. LEARN MORE