AB InBev (NYSE: BUD) Seals $20 Billion Modelo Purchase To Gain Corona

Orlando, FL 6/29/12 (StreetBeat) -- Anheuser-Busch InBev NV (ABI), the world’s biggest brewer, agreed to buy the remainder ofMexico’s Grupo Modelo SAB for $20.1 billion in cash, gaining full control of the Corona maker to increase its presence in emerging markets.

AB InBev will pay $9.15 a share, the Leuven, Belgium-based company said today, about 30 percent more than the price of Modelo shares before talks were first disclosed on June 25. In a related deal, Constellation Brands Inc. (STZ) will buy Modelo’s stake in their U.S. distribution joint venture for $1.85 billion.

The acquisition speeds AB InBev’s push into faster-growingdeveloping countries as high unemployment and sluggish economies restrain sales in Europe and North America. Mexico’s growth exceeded Brazil’s last year as domestic consumption and exports picked up on the heels of a U.S. recovery. AB InBev, the maker of Budweiser, said it expects the combined company to deliver cost and revenue benefits of at least $600 million annually.

“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.

Corona Extra is the U.S.’s largest imported beer brand, ahead of nearest rival Heineken, according to data from SymphonyIRI Group, a Chicago-based market researcher.

Acquisition Multiple

AB InBev rose 3.8 percent to 61.25 euros at 3:10 p.m. in Brussels trading. Modelo gained 0.5 percent to 118.30 pesos at 8:38 a.m. in Mexico City, where the company is based. That gave the brewer a market value of 383 billion pesos ($28.6 billion).

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 for the remaining 50 percent 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.”

The combined company will sell 400 million hectoliters 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 by Chief Executive Officer Carlos Brito to create a company with brands includingStella Artois and Beck’s.

Mexican Battle

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.

AB InBev isn’t the only brewer expanding into new markets. SABMiller 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.

Antitrust Process

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 LLC, the joint venture that distributes Corona Extra in the U.S., 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.

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 said in today’s statement.

Share Investment

Modelo 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. Two Modelo board members will join AB InBev’s board, 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.

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.

SABMiller Speculation

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 have control of distribution, marketing and pricing for all Modelo brands in the U.S., it said. AB InBev will have the right to exercise acall option on the Modelo brands every 10 years.

Today’s deal may dampen speculation that AB InBev will seek to combine with its nearest competitor, SABMiller. (SAB) 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.

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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).

Please contact www.thestreetbeat.com for interest in our latest investor relations platform the “CEO Interview Series” with its host Steve Kanaval. The package includes a one-on-one interview with a seasoned industry professional; published segment to our web site with embedded audio/video file; and a compressed file that can be easily e-mailed out to your current and/or potential investors. Please e-mail bflautt@gmail.com or call (662) 392-0740 for pricing and scheduling.

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Beer, Wine Or Whiskey? There's A Lot To Like About Alcohol Stocks

Orlando, FL 11/18/11 (StreetBeat) --There is quite a bit to like about beer, wine, and spirits stocks. Like tobacco, firearms, gambling and adult entertainment, booze stocks fall into that stigmatized segment of the market known as “sin stocks.” They also happen to be fabulous long-term investments.

Because of the social stigma of profiting as a purveyor of vice, many high-minded endowments, pension funds, and other large institutional investors are prohibited from investing in sin stocks, which tends to keep their price relatively low and their dividends relatively high. This means that sin stocks tend to have the characteristics of winning value stocks for those of us with no such moral qualms.

The proof is in the pudding. While there is no “Sin Index” for us to use for comparative purposes, the Vice Fund (VICEX) comes awfully close. The Vice Fund’s mandate is to invest primarily in tobacco, alcohol, gambling, and defense stocks, and over its life it has absolutely crushed the S&P 500 (see Figure 1).

Vice’s exposure to the gaming industry proved to be a disaster when the economy fell into a tailspin in 2008; had the fund avoided this sector and focused more heavily on booze and smokes, its returns would be off the charts. But even with the routing of the gaming industry, Vice’s 80 percent return since 2002 is double that of the S&P 500. It’s good to be bad.

Figure 1: Vice Fund vs. S&P 500

So, dear investor, with all of this as background, whadaya drinkin’? Beer, wine, or whiskey?

In the spirit of World Series baseball, we’ll start with beer. In recent years, the global beer industry has become highly consolidated and is now dominated by just four major players: Anheuser-Busch InBev (BUD), SAB Miller (SBMRY.PK), Heineken (HINKY.PK), and Carlsberg (CGBWF.PK). While a case can be made for any of these beer behemoths in a diversified portfolio, my recommendation is the Brazilian regional giant AmBev (ABV).

Ambev is owned by the much larger Anheuser-Busch InBev, but it trades separately on the NYSE as an ADR. The company has no net debt, and it absolutely mints money. Its return on equity for the trailing 12 months was an impressive 34 percent, and it's growing its earnings per share at a 20 percent per year clip. Not bad. Ambev is also a great long-term play on the rise of the South American middle class. As Brazil, Peru and other rising Latin stars continue to develop into modern economies, companies that profit directly from the legions of new middle-class consumers should do quite well. And Ambev, with its dominant position, is poised to profit quite nicely.

Next on the list is wine. Unfortunately, our options are somewhat more limited here. Unlike the global brew business, wine is much more highly fragmented. The industry is atomized into untold numbers of small vineyards, many of which are privately owned and not available to stock market investors. Of the vineyards that do have stock market listings, many primarily trade outside of the United States or are very thinly traded.

Still, investors can consider Constellation Brands (STZ). Constellation is not a pure play on wine, as it has some exposure to beer and liquor, but it is the largest wine company in the world.

In some ways, the demand story for wine is better than for beer, as wine should benefit from positive demographic trends. The Baby Boomers — the largest and richest generation in history — long ago passed the beer-swilling stage of their lives. They do, however, still enjoy a nice glass of wine with dinner. And Generation X and the much larger Echo Boomer generation have embraced wine at much younger ages than their forbearers. Perhaps it is because they are more health and body conscious (some would just say vain … I’m trying to be open-minded), wine is viewed as a less-fattening alternative to beer.

Constellation has had a rough year, seeing its profits shrink, but the stock is cheap at just 9 times forward earnings and it has a respectable return on equity of 26 percent.

Finally, we get to the hard stuff. Premium spirits stock British Diageo (DEO),is the owner the owner of Johnny Walker scotch, Crown Royal Canadian whiskey, Smirnoff vodka, and Tanqueray gin, among many others. As a seller of premium drinks, Diageo tends to sell to a higher-income consumer. As the “Occupy Wall Street” crowd has made abundantly clear, upper-income Americans and Europeans (and in this case I would include the top half of wage earners, not just the top 1% with which Occupy Wall Street appears to be obsessed) are doing just fine. The working classes are suffering; the professional and leisure classes are not. Whether we enjoy a robust economic recovery or sink back into recession, Diageo should do just fine.

Diageo is also a “backdoor” way to get access to the rise of the emerging market consumer. The company already gets a third of its sales from up-and-coming emerging markets in Asia, Latin America, the Middle East, and Africa, and this percentage will only increase with time. Diageo also pays a great (and rising) dividend of nearly 4 percent.

Whether your preference is beer, wine, or whiskey, consider adding some of these sin stocks to your portfolio. The returns should give plenty of cause for celebration.

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Catfish Under the Arch with a BUD

Tomahawk, WI 10/14/2011 (PennyPayDay) – Three things come to mind when I think of St. Louis: the St. Louis Cardinals (especially now playing in the NLCS series with the Milwaukee Brewers), the Arch and Budweiser… Last night the Brewers were victorious over the Cardinals with a hard-fought game four battle to tie the series at two games apiece. My father, more commonly known as “Catfish” to his friends, was lucky enough to be in attendance for the game with a cold Budweiser in hand with a great view of Busch Stadium and the historic gateway to the west…