A-B InBev Eyes $12 Billion Modelo Takeover

Deal Reflects Strategy of Brewers to Expand Outside Europe as Sluggish Economies Hold Back Growth

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Anheuser-Busch Inbev, the world's biggest brewer, is close to buying the remainder of Mexico's Grupo Modelo SAB for more than $12 billion, according to a person with knowledge of the matter.

The purchase may be announced as soon as this week, said the person, who asked not to be identified as the discussions are confidential. The deal isn't completed and may still fall through, the person said.

A-B InBev, the Leuven, Belgium-based maker of Bud Light, has a non-controlling 50% share of Corona owner Modelo that it inherited after InBev NV bought U.S. brewer Anheuser-Busch Cos. in 2008 for $52 billion, the biggest brewing deal ever. Brewers are among consumer-goods companies looking to expand outside of Europe as high unemployment and sluggish economies holds back growth.

"Modelo is the next best step A-B InBev should make," Gerard Rijk, an analyst at ING Groep NV in Amsterdam, wrote yesterday in an e-mail, saying it allows the company to profit from cost cutting.

Marianne Amssoms, an A-B InBev spokeswoman, and Jennifer Shelley, a spokeswoman for Mexico City-based Grupo Modelo, declined to comment.

In the U.S., Corona and some other Grupo Modelo Mexican brands are imported by Crown Imports, which is a joint venture between Grupo Modelo and Constellation Brands, a liquor and wine marketer. While an A-B InBev purchase of Grupo Modelo would not seem to have an immediate, direct impact in the U.S., there could be implications down the road. "For the immediate future, [the importation rights would] stay with the Crown Imports joint venture," Beer Business Daily reported Sunday. "But what happens when that contract comes up in two years? Well, there are many who say that A-B can't import Modelo brands because of their large market share, and they would break antitrust laws ... Would A-B sell off other brands to import Corona/Modelo? Tough to say."

Modelo, Mexico's largest beer brewer, had sought to prevent Anheuser-Busch from selling its stake to InBev as part of the 2008 merger that also gave A-B InBev nine of Modelo's 19 board seats. At the time of the transaction, Modelo Chief Executive Officer Carlos Fernandez said that his company was interested in buying back Anheuser-Busch's non-controlling stake, which the Budweiser-maker bought in the 1990s.

In July 2010, Modelo lost an arbitration bid to deny board seats to some A-B InBev directors. Modelo has expanded in the U.S. and in other countries without using A-B InBev's distribution network.

A-B InBev's shares fell 0.4% to 55.63 euros at close of trading in Brussels on June 22 . Modelo's shares closed up 2.9% at 97.95 pesos, giving the company a market capitalization of 316.9 billion pesos ($23 billion).

Modelo's market value gives it a price-to-earnings ratio of about 28.7, according to data compiled by Bloomberg. That compares with an average of 26.3 for peers in the industry. Japan's Kirin Holdings Co. (2503)'s ratio is almost 121, while Heineken NV, which competes with Modelo in Mexico after buying Fomento Economico Mexicano SAB's brewing unit in 2010, trades at almost 28 times earnings, the data shows.

A-B InBev, formed by a series of takeovers, has cut debt from the Anheuser-Busch deal and agreed to buy control of Cerveceria Nacional Dominicana for $1.24 billion in April, boosting its expansion with the addition of the Dominican Republic's biggest beermaker. SABMiller, the world's second- biggest brewer by volume, agreed to buy Foster's Group Ltd. in Australia last year for about A$10.5 billion ($10.53 billion).

The Wall Street Journal reported earlier that A-B InBev was in talks to buy the remaining stake in Modelo.

~~Bloomberg News~~

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