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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