Mexican Beer Brawl Brews

Mexican beer giant Grupo Modelo’s arbitration with Anheuser-Busch (AB) and owner InBev could well yield a jumbo loan, say LatAm bankers. Modelo is protesting InBev’s July 2008 acquisition of AB, which allows the Brazilian-Belgian behemoth to inherit AB’s 50.2% Modelo stake. InBev is a direct competitor of Modelo’s in the LatAm beer market. A process that began in mid-October in the Southern District Court of New York is ongoing, say company officials. The uproar leads market participants to believe Modelo’s controlling shareholders will try and buy out AB. “I think they would like to acquire the Anheuser stake at a really cheap price,” says a senior LatAm M&A banker familiar with Modelo’s situation. He adds that public valuations are especially compelling for a purchaser. Modelo’s Mexican listed shares have fallen 14% so far this year, and 30% since last May. Other bankers say the company’s market cap, which Thursday stood at MXP127bn, would not necessarily be a good indicator of an eventual price for the stake. They say that a discussion between almost equal partners presents a different dynamic to typical divestiture talks, which could mean a substantial divergence to market pricing. Modelo is rumored to be in talks with banks to arrange a sizeable loan, and bankers away from the supposed discussions say there is no reason for the company to raise debt other than to buy the stake. Modelo had a cash equivalent balance of MXP34.9bn in Q308. It has zero net debt, with no outstanding short or long term bank loans, according to its latest SEC filing. That gives it substantial capacity to take on new liabilities, though convincing banks to extend capital remains challenging. A $1.7bn Bimbo loan, still moving slowly through retail syndication, would likely provide the best benchmark for Modelo. Bimbo pays margins of Libor/TIIE plus 275bp for 3 years, and 325bp over for 5 years. AB owns a 50.2% financial stake and 44.0% of the voting shares in Modelo, while the controllin