A-B InBev Acquires Remaining Stake in Grupo Modelo

Anheuser-Busch InBev has announced that it is set to further consolidate its position as the leading global brewer with the acquisition of the remaining 50% share in Grupo Modelo, the largest Mexican brewer, for US$20.1 billion. The deal will significantly enhance A-B InBev’s already dominant position in Latin America, complementing its strong foothold in Brazil with one in Mexico, the second largest market in the region.

Strong growth but intensifying competition in Mexico

Grupo Modelo was the eighth largest global brewer in 2011, and was seen as a highly attractive acquisition target due to its dominant position in Mexico, where, according to Euromonitor International, it accounted for 56% of total volume sales. Moreover, the company has a wide global presence with its main Corona Extra brand, which is exported to around 180 countries.

A-B InBev, just like other major brewers, has been looking to increase its presence in high-growth emerging markets, and the Mexican market offers potential for the company as beer volumes are forecast to increase by over one billion litres (3% CAGR) over 2011-2016 thanks to economic development and growing disposable incomes.

Competition, however, is intensifying in the market as Heineken became the second largest brewer in 2010 following its acquisition of Modelo’s major rival FEMSA, and is committed to consolidating its position. Furthermore, a new antimonopoly law came into force in 2011 which is expected to help the emergence of small beer producers which previously faced blockades in supply and distribution imposed by the market’s strong duopoly.

Deal follows a fragile relationship

A-B InBev gained a 50% non-controlling equity stake in Grupo Modelo following the combination of Anheuser-Busch and InBev in 2008, and ever since there has been speculation about the company snapping up the Mexican brewer. However, the two companies have endured a fractious relationship. Modelo had sought to prevent Anheuser-Busch from selling its stake to InBev, and following the merger it filed a notice of arbitration against A-B InBev, trying to keep its independence, but the arbitration panel decided in A-B InBev’s favour. Ever since then Modelo has tried to keep its distance from the brewing giant, emphasising that it would not sell its business. Nevertheless, it seems that with Heineken becoming the major rival of the company in its key Mexican market, whilst also looking to expand FEMSA’s brands internationally, Modelo’s owners found that it was the right time to consider A-B InBev’s offer.

A-B InBev will strengthen its global position with Modelo’s brands

Grupo Modelo represented a rare opportunity for A-B InBev to further strengthen its leading global position. Thanks to several mergers and acquisitions over the past decade, the beer industry has become increasingly consolidated, with very few large-scale targets left to acquire. Modelo, with its strong position in Mexico, offers a strong platform for future growth, and the deal will enhance A-B InBev’s portfolio with Modelo’s well-known Corona Extra brand.

Mexican brands have been particularly successful in A-B InBev’s key US market in recent years, and the company will significantly strengthen its position with its newly acquired Mexican brands. However, as A-B InBev commands nearly 50% of total beer volumes in the market, as part of the deal Modelo will sell its stake in its distribution joint venture, Crown Imports LLC, to its partner Constellation Brands.

A-B InBev is also likely to challenge Heineken in many other markets as it says it is committed to expanding distribution of Grupo Modelo’s brands through its extensive global network. Although the transaction is subject to regulatory approval, it is expected to close during the first quarter of 2013, and A-B InBev says that it expects the deal to yield annual synergies of at least US$600 million.