AB InBev (NYSE: BUD) Nears Deal to Buy Modelo

Atlanta, GA 6/25/12 (StreetBeat) – Anheuser-Busch InBev NV (NYSE: BUD), the world’s biggest brewer, is close to buying the remainder of Mexico’s Grupo Modelo (OTCBB: GPMCF) SAB for more than $12 billion, according to a person with knowledge of the matter.

The purchase may be announced as soon as this week, said 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.

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

“This is the deal where 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.”

Marianne Amssoms, a spokeswoman for AB InBev, and Jennifer Shelley, a spokeswoman for Mexico City-based Grupo Modelo, declined to comment after the Wall Street Journal reported late yesterday that AB InBev was in talks to buy the remaining stake.

SABMiller Downgraded

AB InBev rose 1.5 percent to 56.47 euros at 10:36 a.m. in Brussels trading. Modelo’s shares closed up 2.9 percent at 97.95 pesos in Mexico City on June 22, giving it a market value of 316.9 billion pesos ($22.9 billion).

A deal at $12 billion would be “attractive,” boosting earnings by about 10 percent, Pablo Zuanic, an analyst at Liberum Capitalin London, said in a note. Zuanic has a buy recommendation on AB InBev. ABI would have to pay $11.35 billion if it would be able to buy the stake at the market price, he said.

Competitor SABMiller Plc fell 1.9 percent to 2,456.5 pence ($38) in London trading. Liberum cut SABMiller to “sell” today on the grounds that speculation of a bid from AB InBev may fade. The Peroni beer maker rose the most in almost three years in October after a Brazilian website reported that it was in talks to be bought by AB InBev.

Next Step

“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 and so-called synergies.

Modelo, Mexico’s largest beer brewer, 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. Mexican families including the family of Fernandez own a majority of a holding company that controls the brewer. Modelo has expanded in the U.S. and in other countries without using AB InBev’s distribution network.

“There is a risk that ABI would have to divest of some brands to keep market share under 50 percent” in the U.S., Ian Shackleton, an analyst at Nomura in London, wrote today. “There could also be restrictions on bringing the U.S. distribution of Corona in-house within ABI.” Modelo currently distributes its brands through a joint venture with Constellation Brands Inc. (NYSE:STZ) called Crown Imports LLC.

Comparative Value

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. AB InBev trades at 19.

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. InBev itself was formed when members of AB InBev’s current management team, including Chief Executive Officer Carlos Brito, combined their Brazilian brewer Cia. de Bebidas das Americas, or AmBev, with Belgium’s Interbrew SA.

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, adding the Dominican Republic’s biggest beermaker.

AB InBev isn’t the only brewer expanding into new markets. SABMiller (OTCBB: SBMRY), 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 ($10.5 billion).

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