The world’s largest brewer is working to make itself bigger.
Belgium-based Anheuser-Busch InBevand Mexico-based Grupo Modelo have confirmed they are in talks to sell the remainder of Modelo to Anheuser-Busch InBev, which already owns a non-controlling 50-percent stake in Modelo. Both sides say although discussions are taking place, a deal — with an expected price tag of $12 billion — is not certain.
Anheuser-Busch InBev gained its original stake in Modelo when InBev bought Anheuser-Busch in 2008 for $52 billion. Modelo, the maker of the Corona and Modelo brands among others, is the No. 1 brewer in Mexico with 57-percent market share.
Many Wall Street analysts see the move as positive, but not transformative because both companies will benefit from a resulting boost in cost savings.
Stifel Nicolaus analyst Mark Swartzberg sees the acquisition as a positive for shareholders with room for Anheuser-Busch InBev to implement “significant improvement in Modelo’s margins and cash conversion.“
One winner not involved in the talks, but directly impacted is Constellation Brands .
D.A. Davidson analyst Timothy Ramey sees an acquisition putting to rest uncertainty that had been looming over Constellation in the mind of stockholders: the contractual end in 2017 of the U.S. distribution rights for Modelo brands currently held by Crown Imports, a joint venture between Modelo and Constellation.
Ramsey expects Modelo will renew its distribution contract with Crown, which has made tremendous strides in growing the Corona and Modelo brands within the U.S. over the last 15 years. Another option is for them to buy Constellation’s share of Crown when the contract ends. UBS analyst Kaumil Gajrawala expects that scenario could lead to a payout of at least $2 billion dollars for Constellation.
One aspect looming over a potential deal is the possibility of regulatory opposition here in the U.S.
According to Stifel Nicolaus, a deal would boost Anheuser-Busch InBev's domestic volume share to 56 percent from 48 percent. In addition, Anheuser-Busch InBev would now control Corona Extra, the best-selling beer import in the U.S. and its well-known tagline “Find Your Beach.”
Beyond the Corona brand, Anheuser-Busch InBev would also lay claim to Modelo Especial, the No. 3 imported beer, which has shown significant growth in recent years.
Swartzberg speculates Anheuser-Busch InBev may look to sell some brands such as Natural Light and Busch in order to reduce its market share and appease regulators. There is a precedent: InBev sold off its LaBatt brand operations in the U.S. to help gain antitrust approval for its 2008 acquisition of Anheuser-Busch.