AB InBev to Swallow Corona Maker Grupo Modelo in $20 Billion Deal

But U.S. Importation of Mexican Brew Will Remain With Crown Imports

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The world's largest brewer just got a little bigger. In a $20.1 billion cash deal announced this morning, Anheuser-Busch InBev will take full control of Mexico-based Grupo Modelo, which makes Corona Extra.

At the same time Grupo Modelo announced it would sell its 50% stake in Crown Imports, the U.S. importer of Corona, to Constellation Brands, Crown 's other owner, for $1.85 billion. That means Crown will continue to control marketing, distribution and pricing decisions stateside for Corona, as well as the other Modelo beers in its stable including Corona Light, Modelo Especial, Pacifico, Negra Modelo and Victoria.

"This agreement provides certainty and continuity for Crown and its wholesaler partners," Bill Hackett, president of Chicago-based Crown Imports, said in a statement. "We look forward to continuing to work with our wholesaler network to further grow the Modelo portfolio of brands across the U.S. marketplace."

AB InBev's purchase of Grupo Modelo creates a brewing behemoth.
Here is a look at the combined company:
  • Revenues: $46.8 billion
  • EBITDA: $18.1 billion
  • Billion dollar brands: 17
  • Employees: approx. 150,000
  • Corona: Exported to over 180 countries
  • Source: AB InBev

    It also means that agency relationships and advertising are likely to remain unchanged. The shop for Corona Extra is Cramer-Krasselt, while Goodby Silverstein & Partners has Corona Light and the fast-growing Modelo Especial brand. Crown 's other brands receive very little traditional media support. The deal moves Constellation Brands further into the beer business. The company's core operations have been wine and liquor, with brands such as Robert Mondavi, Clos du Bois, Kim Crawford and Svedka vodka.

    Globally, the deal translates into a further consolidation of the beer business. AB InBev already has 18.3% international share, putting it far ahead of No. 2 SABMiller at 9.8%, according to Euromonitor International. Grupo Modelo has 2.9%, meaning AB InBev will control 21.2% of the international market under the deal, which is scheduled to close in the first quarter of 2013 pending regulatory approvals in the U.S., Mexico and other countries.

    Belgium-based AB InBev had already owned 50% of Grupo ModeIo. With full control, AB InBev will make Corona one of its flagship global brands, joining Budweiser, the brewer said in a statement. "There is tremendous opportunity from combining two leading brand portfolios and further expanding Grupo Modelo's brands worldwide through AB InBev's extensive global distribution network," said AB InBev CEO Carlos Brito.

    The sale of the U.S. distribution rights to Crown looks like an attempt to ease anti-trust concerns here, where Corona is the No. 1 imported beer by market share. But in a note to investors today, Bernstein Research said: "We think it may not be enough."

    The financial analyst group pointed to InBev's purchase of U.S.-based Anheuser-Busch in 2008, when the Department of Justice required the disposal of the Labatt brand in the U.S., including the manufacturing contract, to ease monopoly concerns. "If the [Department of Justice] insisted on a similar remedy, this could imply the sale of the U.S. brand rights to Constellation and a new manufacturing solution, maybe the disposal of a Mexican brewery to Constellation or a third party, or theoretically CCM/Heineken could end up brewing Corona and the other brands" destined for the U.S., according to Bernstein. (CCM Heineken is the Mexican subsidiary of Heineken International.) Bernstein added: "Clearly an extreme solution such as this could necessitate the renegotiation of the deal and might even be a deal-breaker."

    Regardless of what happens in the U.S., the deal will have big consequences in Mexico, where Modelo fiercely competes with Heineken, whose Mexican brands include Dos Equis, Tecate, Sol and Bohemia. "The biggest loser in all of this is Heineken, who now face a leaner, meaner AB InBev in Mexico," Anthony Bucalo, an analyst at Santander in London, wrote today, according to Bloomberg.

    In a statement to Ad Age , Heineken said: "We are confident in our ability to compete successfully in the Mexican beer market, like we have since we acquired FEMSA Cerveza in 2010. Today's announcement doesn't change that . Nor does it change our strategy in Mexico, which is -- in broad strokes -- pinned on managing a complementary portfolio with strong local and international beer brands, further premiumization of the Mexican beer category and running a cost-effective business model."

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