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A-B InBev Completes Modelo Acquisition

The long acquisition is over. Anheuser-Busch InBev (NYSE: BUD  ) announced yesterday it had completed its acquisition of Mexican brewer Grupo Modelo in a deal valued at $20.1 billion that creates a combined company with approximately 400 million hectoliters of beer volume annually.

As part of the transaction hammered out with the U.S. Justice Department to overcome antitrust objections, A-B will sell to Constellation Brands Modelo's Piedras Negras brewery, its 50% stake in Crown Imports, and perpetual rights to Grupo Modelo's brands in the U.S. That deal is separately expected to close on June 7.

The buyout of Grupo Modelo was announced in June 2012. The U.S. Department of Justice had sued A-B in January 2013 to block the deal, before working out a compromise.

Anheuser-Busch InBev CEO Carlos Brito said in a statement Tuesday: "We have tremendous respect for Grupo Modelo and its brands, and we are thrilled to welcome our Grupo Modelo colleagues to the global team. We look forward to realizing our opportunities for growth and bringing our beers to more consumers around the world as we join two world-class brewers."

The deal brings together five of the top six most valuable beer brands in the world. With Mexico recognized as what A-B calls "the world's fourth-largest profit pool for beer" and still possessing an "attractive" growth profile, the combination of the two brewers is expected to generate approximately $1 billion in cost synergies.

With almost 90% of Modelo's outstanding Series C shares validly tendered and acquired as of May 31, A-B will establish a trust to further accept Modelo shares that get tendered at a rate of $9.15 per share and will do so over the next 25 months. Until then, Modelo's shares will continue to be quoted on the Mexican Stock Exchange.

A-B InBev will recognize in its financial reports the amount deposited with the trust as restricted cash and will recognize a liability for the Grupo Modelo shares it did not acquire by the end of the tender offer. A-B InBev now owns approximately 95% of Grupo Modelo's outstanding common shares.

A side agreement has Modelo shareholders receiving 23.1 million A-B shares over the next five years for $1.5 billion through deferred share instruments. However, by May 31, approximately 80% of the shares promised in the deferred share instruments had been hedged.

Both companies have a relationship dating back more than 20 years, and their combination expects to benefit from the significant growth potential that brands such as Corona have on a global basis. Moreover, A-B seeks to leverage opportunities for its own brands to grow through Modelo's distribution network.


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