AB InBev buys out Corona maker Modelo for $20 billion
The Daily Herald /Reuters - Jul 10th 2012, 08:42
Brussels--Anheuser Busch InBev, the world's biggest brewer, is taking over Mexico's Grupo Modelo for $20.1 billion, giving it dominance in Latin America's second-largest economy and adding Corona, the top-selling imported beer in the United States, to its brands.
The long-awaited deal is the biggest foreign buyout of a Mexican company in more than 20 years and shows how much global brewers are willing to pay for developing market growth in an increasingly consolidated industry.
AB InBev, the owner of Budweiser and Stella Artois beers, said on Friday it had reached an agreement with Modelo's controlling families to buy the half of Modelo it does not already own, increasing its exposure to Mexico's beer market which is growing at about 3 percent a year.
Modelo, founded in 1925, is Mexico's biggest brewer with a 50 percent-plus market share in a virtual duopoly with Heineken's FEMSA Cerveza in the world's fourth most-profitable beer market. AB InBev expects cost savings from the deal of at least $600 million annually after four years, more than most analysts anticipated, plus a further one-time $500 million of cashflow gains.
The new expanded AB InBev would produce about 400 million hectolitres (10.6 billion U.S. gallons) of beer a year, 75 percent more than world number two SABMiller, with estimated revenues of $47 billion and 17 billion-dollar brands, with the addition of Corona Extra, Modelo Especial and Victoria.
The Belgium-based brewer 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 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 United States 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 antitrust concerns. However, the deal includes a call option allowing AB InBev to buy all of Crown every 10 years at a fixed multiple.
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