AB InBev Mulling More Modelo

Published in CSP Daily News

In talks with Justice Dept. to purchase other half of Grupo Modelo SAB

LEUVEN, Belgium -- Anheuser-Busch InBev NV, the world's biggest brewer, is in talks with the U.S. Department of Justice about concessions that might win approval for its purchase of the half of Grupo Modelo SAB it doesn't already own, three people familiar with the matter told Bloomberg.

The talks center on a long-term supply and pricing agreement between the merged company and Crown Imports LLC, which imports brands including Modelo's Corona into the United States, said the people, who asked not to be named because the discussions aren't public and the government hasn't decided whether to approve the acquisition.

The talks aren't focused on the divestiture of production assets, two of the people said.

AB InBev agreed in June to buy the outstanding 50% of Modelo, Mexico's largest beer maker, for $20.1 billion in a transaction that would marry Budweiser with brands including Corona Extra, Negra Modelo and Pacifico. In a related deal, Constellation Brands Inc. plans to buy Modelo's stake in Crown, the U.S. distribution joint venture of the two companies, for $1.85 billion.

The Justice Department "may be worried AB InBev will exercise indirect influence over Corona's pricing policy in the U.S.," Trevor Stirling, an analyst at Sanford C. Bernstein, told the news agency. "There's a strong possibility they'll say AB InBev will have to get rid of the production contract."

This could cut the projected synergies AB InBev would get from the deal, and they may not get fair value on the disposal of the contract, he said.

AB InBev said at the time the deal was announced that it expects annual synergies of about $600 million.

The situation is fluid as the review by the antitrust division moves into the final stages and a decision isn't expected for another three or four weeks, one of the people said. The Justice Department staff working on the transaction hasn't yet submitted a formal recommendation to senior officials, another one of the people said.

Gina Talamona, a spokesperson for the Justice Department, declined to comment to Bloomberg. Laura Vallis, a spokesperson for AB InBev in the United States, Jennifer Shelley, a spokesperson for Grupo Modelo, and Cheryl Gossin, a spokesperson for Victor, N.Y.-based Constellation declined to comment to the news agency except to reiterate that they expect the deal to close this quarter.

Mexico's antitrust regulator approved the transaction in November. AB InBev, which is based in Leuven, Belgium, controls 18% of the global beer market. Its Bud Light brand is the top selling U.S. beer and Modelo's Corona is the top import.

Grupo Modelo, based in Mexico City, ranked fourth in the North American beer market in 2011 with a 5.5% share by volume, according to Bloomberg Industries and Euromonitor International. AB InBev ranked No. 1 with a 48% share of the market, far ahead of No. 2 Molson Coors Brewing Co., which had 16% market share during the same period.

The New York Post reported Jan. 13 that the Justice Department could require the sale of some noncore U.S. brands by AB InBev, Bloomberg said. This would be a "manageable" remedy, "with the strategic rationale of the deal still compelling," analysts including Dirk Van Vlaanderen at Jefferies Group Inc. wrote in a note cited by the news agency, reiterating their "buy" rating on the stock.

If the transaction is approved, the combined company would have revenue this year of about $47 billion.

"The real prize here is the Mexican business and the upside from restructuring it, as well as Corona's international potential," Stirling said. "They're probably willing to compromise on the U.S. business."