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AB InBev Near Modelo Takeover for $12 Billion

June 25, 2012

AB InBev Said to Near Modelo Takeover for Over $12 Billion

Corona beer bottles on a production line at the Grupo Modelo SAB beer factory in the state of Zacatecas, Mexico. Photographer: Susana Gonzalez/Bloomberg

Grupo Modelo SAB, Mexico’s biggest brewer, rose the most in more than 2 1/2 years in Mexico City trading in anticipation of an offer from Anheuser-Busch InBev NV (ABI) for the remainder of the company.

The shares gained as much as 12 percent, the steepest intraday advance since Oct. 2, 2009. They were up 9.8 percent at 107.51 pesos as of 8:44 a.m., giving the Corona maker a market value of 347.9 billion pesos ($24.9 billion). AB InBev rose 2.9 percent to 57.22 euros at 4 p.m. in Brussels.

AB InBev, based in Leuven, Belgium, is close to buying the rest of Modelo 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, the world’s biggest brewer, gained a non- controlling 50 percent stake in Modelo (GMODELOC) when InBev NV bought Bud Lite brewer Anheuser-Busch Cos. in 2008 for $52 billion, 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 deal would mean the biggest step forward since the Anheuser-Busch transaction in 2008, creating new growth opportunities and making one of the best and strongest consumer- goods companies even stronger,” Marc Leemans, an analyst at Banque Degroof SA in Brussels, said in a note.

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

The reported value of the transaction would make it “attractive” to AB InBev, potentially boosting earnings by about 10 percent, Pablo Zuanic, an analyst at Liberum Capital in London, said in a note. Zuanic has a buy recommendation on AB InBev and today cut competitor SABMiller Plc (SAB) to sell from hold on the grounds that speculation of a bid from AB InBev may fade.

SABMiller dropped as much as 2.2 percent in London trading and was down 1.6 percent at 2,465 pence at 3 p.m.

An acquisition of the rest of Modelo by AB InBev would mean “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.”

Lost Arbitration

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. Modelo has expanded in the U.S. and in other countries without using AB InBev’s distribution network.

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. Japan’s Kirin Holdings Co. (2503)’s ratio is almost 121, while Heineken NV (HEIA), which competes with Modelo in Mexico after buying Fomento Economico Mexicano SAB (FEMSAUB)’s brewing unit in 2010, trades at almost 28 times earnings, the data shows.

“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.

Reduced Debt

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.

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, boosting its expansion with the addition of the Dominican Republic’s biggest beermaker.

SABMiller Plc, 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 ($10.53 billion).

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Clementine Fletcher in London at cfletcher5@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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