Category: M&A

Anheuser-Busch InBev has agreed to buy the remaining 50% of Mexico’s Grupo Modelo, it says, for a $20.1bn price at the high end of market expectations. With the high valuation comes tremendous growth potential in Mexico, and AB InBev clinches one of the last few large beer assets left in the region. In the deal, AB InBev will pay $9.15 per share, about 30% more than the price of Modelo shares before talks were first disclosed June 25. In a related deal, US distributor Constellation Brands will buy Modelo’s stake in their US distribution joint venture for $1.85bn. The combined company should deliver cost and revenue benefits of at least $600m annually, according to AB InBev. Though Modelo’s controlling families had long been expected to only sell high, the acquisition price represents a multiple of about 16.2x Ebitda, compared to an average of about 12x-13x for international beer deals. It was higher than the 14x-15x level that analysts were estimating when the two sides announced they were discussing a deal earlier in the week. “A rich multiple is worth it given the growth potential for Mexico, the savings upside and potential for Corona as a global brand. Some may be disappointed by the fact that ABI has not secured US distribution, but looks like the anti-trust issues were too overwhelming,” UBS says in a report. Constellation will have control of distribution, marketing and pricing for all Modelo brands in the US. AB InBev will have the right to exercise a call option on the Modelo brands every 10 years. AB InBev is doing its best to block out its global competitors in the region. It paid $1.24bn for control of Cerveceria Nacional Dominicana in April. AB InBev plans to fund the acquisition with a 3-year, $8bn term loan and a $6bn credit facility for up to 2 years. The loan package is arranged by 11 of the brewer’s relationship banks, CEO Carlos Brito says on a conference call, and will cost “around 2%.” Bank of America, Santander, Bank of Tokyo-Mitsubishi, Barcla

Mexico’s Grupo Modelo is in strategic talks with Anheuser-Busch InBev, to expand its current relationship, it says, leading to speculation that a takeover is in the works. Analysts say a deal for all of Model or for control of it would make sense for AB InBev, which already owns a non-controlling 50% stake in Modelo. “It would be a very logical purchase for AB InBev,” says an equity analyst who covers the company, nothing that the market has long expected it. The value is seen as coming with at least some premium to the 11x-13x Ebita multiples seen in recent Beer mergers, including SABMiller-Fosters and Heineken-Femsa. A valuation of 15x for Modelo would imply a price of roughly $14bn, the analyst notes. Estimating the value is difficult, as it is unclear if the possible deal would include payment to Constellation Brands to buy a stake in a distribution joint venture. “A take-out price would be closer to $15bn, equating to a 30% control premium (in line with historical average brewing sector premiums),” Citi says in a report. The bank calls the potential deal strategically “excellent,” noting tremendous upside in Mexico’s beer market and would be 1% accretive to AB InBev’s earnings in year 1. “These discussions may or may not lead to a consummation of a transaction and any speculation on the terms and conditions is premature,” Grupo Modelo says.