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AB InBev agrees to buy out Modelo

by Renee Cordes | Published June 29, 2012 at 11:00 AM

Anheuser-Busch InBev is clinking glasses with Mexico's Grupo Modelo SAB de CV, after reaching an agreement Friday, June 29, with an enterprise value of $28.5 billion to buy the outstanding 50% of the maker of Corona beer.

AB InBev, the Leuven, Belgium-based brewer of Budweiser, Stella Artois and Beck's, is offering $9.15 a share, or 278.6 billion pesos ($20.6 billion) in total, for the outstanding shares in Mexico City-based Modelo. The price is a 30% premium to Modelo's closing share price June 22, the last trading day before the companies revealed they were in talks.

The enlarged AB InBev will have estimated 2012 revenue of $47 billion and strengthen its leadership in the global beer market, with 17 brands pulling in revenue of $1 billion or more and annual output of 400 million hectoliters.

The deal eclipses by size SABMiller plc's A$10.5 billion ($10.53 billion) swoop on Australia's Foster Group Ltd. last year.

"There is tremendous opportunity from combining two leading brand portfolios and further expanding Grupo Modelo's brands worldwide through AB InBev's extensive global distribution network," AB InBev CEO Carlos Brito said in a statement.

Based on exchange rates as of June 22, AB InBev put the equity value of the deal at $20.1 billion and put the enteprise value at $28.5 billion. It said that the enterprise value, which includes cost synergies but disregards the proceeds of a related divestment, equates to a multiple of 10.8 times Modelo's $2.7 billion Ebitda.

In a research note, Amsterdam-based ING Groep NV analyst Gerard Rijk said the higher than expected tab was "disappointing."

Anheuser-Busch InBev shares were little changed Friday midday on the Euronext Brussels exchange at €59.46, for a total market capitalization of about €95.5 billion ($120.1 billion). In Mexico City, Modelo stock closed Thursday at 117.74 pesos.

The deal will be completed in a series of transactions designed to simplify and streamline Modelo's group structure. They include merging Diblo SA de CV, the holding company for Modelo's operating subsidiaries, and leading Mexican bottler Dirección de Fábricas SA de CV, into the parent in return for newly issued Modelo shares. Immediately after this step, AB InBev will launch an all-cash tender offer for Modelo.

In a related deal, Modelo will sell its 50% stake in Crown Imports, a joint venture that imports and markets Modelo's brands in the United States, to Constellation Brands Inc. for $1.85 billion, giving Constellation 100% ownership.

AB InBev said it has committed financing for the purchase, and has taken on an additional $14 billion of bank debt to fund the deal. It is projecting annual synergies of at least $600 million.

Analyst Marc Leemans of Bank Degroof in Brussels noted that while the buyer's debt load will temporarily grow over twice net debt to Ebitda, "given the healthy cash generation and a stunning $600 million of annual synergies, even $20 billion would be digested in a few years time."

AB InBev gained its stake in Modelo when Belgium's InBev bought Anheuser-Busch Cos., of St. Louis, in 2008 for $52 billion in the world's biggest brewing merger to date to form AB InBev. At the time, Modelo sought to prevent Anheuser-Busch from selling its stake to InBev, which gained nine of Modelo's 19 board seats. Modelo CEO Carlos Fernández had even said back them that his company was interested in buying back the non-controlling stake owned by Anheuser-Busch.

After Friday's deal closes, expected in the first quarter of 2013, Modelo will keep its name and remain headquartered in Mexico City with a local board, including Modelo CEO Carlos Fernández and two other existing Modelo directors.

Two unspecified Modelo board members will also join AB InBev's board. Modelo directors have pledged to invest $1.5 billion of their proceeds from the tender offer into shares of AB InBev within five years through a deferred share instrument.

AB InBev took financial advice from Lazard's Antonio Weiss and Alexander Hecker. It received legal counsel from Skadden, Arps, Slate, Meagher & Flom LLP's Paul Schnell, Tom Greenberg, Marie Gibson, Steve Sunshine, Cliff Aronson, Ian John and Victor Hollender and Sullivan & Cromwell LLP's Frank Aquila, George Sampas,

Neal McKnight, John Estes and Krishna Veeraraghavan.

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Tags: Anheuser-Busch InBev | Grupo Modelo SAB de CV | M&A beverage | Mexico

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