AB Inbev buys Corona brewer for $20.1B
Half of Modelo sold to world’s biggest brewer
BRUSSELS • AnheuserBusch InBev, the world’s biggest brewer, is to buy the half of Mexican group Modelo it does not already own for US$20.1-billion, the latest big deal by brewers looking for growth in emerging markets.
The owner of Budweiser and Stella Artois beers said Friday it had reached an agreement with Grupo Modelo’s controlling families to secure a leading position in a growing domestic beer market and capture best-selling Mexican beer Corona Extra.
Modelo, founded in 1925, is Mexico’s biggest brewer with a 50%-plus market share in a virtual duopoly with Heineken’s FEMSA Cerveza in the world’s fourth most-profitable beer market.
Corona is the biggest imported beer in the lucrative U.S. market.
AB InBev is attracted to Modelo by a Mexican beer market growing at about 3 percent and cost savings it said would be at least $600million annually after four
years, plus a further one-off $500-million of cashflow gains.
AB InBev said it had added $14-billion of new bank loans to fund the all-cash transaction, adding that it would reduce its net debt/core profit (EBITDA) ratio to 2.0 times during 2014.
Some analysts believe AB InBev could then line up world number two SABMiller as its next acquisition target. Others say that the drinks operations of PepsiCo would make more sense.
In a related but separate transaction, Modelo will sell its 50 percent stake in joint venture Crown Imports to partner Constellation Brands Inc for $1.85-billion.
Crown Imports distributes Modelo beers in the U.S. in a deal that runs to the end of 2016.
If AB InBev had wanted to buy out Constellation and distribute the beer itself, it would have pushed its market share in the United States above 50 percent, leading to anti-trust concerns.
However, the deal did include a call option allowing AB InBev to buy all of Crown every 10 years at a fixed multiple.
Analysts said AB InBev’s bill was high, a 30 percent premium relative to Friday’s close and at an enterprise value to core profit (EBITDA) multiple of 15.4 times.
That compares with a mul-
tiple of 11 for Heineken’s purchase of FEMSA Cerveza and 15 for SABMiller’s acquisition of Foster’s.
“Modelo is the market leader and FEMSA is not, and Modelo has the leading import brand into the United States,” said Societe Generale analyst Andrew Holland, adding that he had expected a multiple of 13 before the deal was announced.
“It was always going to be high, given that Modelo shareholders are under no compulsion to sell. But InBev has a strong track record in integration and cost savings,” he said.
The cost savings target was more than many analysts had expected.
Two Modelo board members have committed to invest $1.5-billion of their proceeds in AB InBev shares, to be delivered within five years.
The pair will also join AB InBev’s board.
AB InBev and Modelo confirmed they were in talks on June 25, following a series of deals by big brewers looking to expand in growing beer markets and find ways to cut costs.