James Wilmore

US: Modelo's domestic business priority for Anheuser-Busch InBev - analyst

By | 4 February 2013

A-B InBev could give up on trying to control the US side of the Modelo business

A-B InBev could give up on trying to control the US side of the Modelo business

Anheuser-Busch InBev will find a way to take control of Grupo Modelo's domestic beer business as it sees this as the “crown jewel” of the proposed US$20.1bn deal, an analyst has predicted. 

CLSA analyst Caroline Levy said in a note late Friday (1 January) that the Budweiser brewer “won't let US issues derail it”. The US Department of Justice hit A-B InBev with an anti-trust lawsuit over the proposed acquisition last week. 

Levy said: “The current administration appears hostile to business and big mergers specifically, so it is unclear what concessions are likely to be needed.

“But, we believe A-B InBev sees the Mexico business as the crown jewel of the deal and will find a way to get it.” 

The analyst suggested, however, that the deal could still collapse completely. “It is unclear what concessions in the US could be palatable to the DoJ, given that it views any connection to Modelo’s US production as too much control.”

But, Levy said she believes A-B InBev would be “willing to walk away” from the US side of the Modelo business and instead concentrate on other markets. Modelo's brands are currently distributed in the US through Crown Imports, a JV the Mexican brewer has with Constellation Brands. Constellation is due to take full control of Crown, if the A-B InBev, Modelo deal goes through. 

Meanwhile, Levy said that the delay in the deal is costing A-B InBev time and money. She flagged that the brewer has already borrowed around $7.5bn to help fund the deal. 

“While rates are low, it is still paying about $150m annually on this debt, or about $0.07 per share," Levy said. "A delay is also a distraction for management and will cost legal fees as well as focus."

Expert analysis

2012 The U.S. Beer Market

This "value set" report combines Beer in the U.S., Imported Beer and Specialty Beer and Microbrewery Markets to create the most exhaustive study of the U.S. beer market available. An $18,000+ value that is priced much lower, it scrutinizes all aspects, covering state and regional markets, distribution channels, brewers and brands, imports, exports, packaging, pricing, advertising, demographics and projections. It also provides in-depth examination of the mergers, acquisitions and joint ventures reshaping the industry plus projections through 2016.

Sectors: Beer & cider, Mergers & acquisitions

Companies: InBev, Modelo, Constellation

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