AB InBev Ready to Tap Grupo Modelo?

Deal could include import rights, approach $22 billion

Jennifer Bulat, Group Director of Editorial Production, CSP

ST. LOUIS -- In a deal that would make a behemoth even bigger, and possibly cause the Federal Trade Commission to raise its collective eyebrow, AB InBev seems poised to purchase Corona Extra maker Grupo Modelo for as much as $22 billion.

If it happens, the deal between AB InBev and 87-year-old, family-owned Grupo Modelo, Mexico’s largest brewer, has been a long time coming.

The companies were ready to shake hands and merge in 2008, right before A-B was purchased by InBev. Various sources offer various reasons for why it didn’t happen—ranging from miscommunication about the InBev offer for A-B, to disagreements about the new company’s leadership—but many in the industry say it was inevitable, regardless of how long it took to get here.

“The deal made a lot of sense in July 2008; it was a good deal for both parties then,” Joe Vonder Haar, managing partner of iSEE Store Innovations LLC and a former A-B employee, told CSP Daily News. “It was only a matter of time before it came back again.”

Early reports had AB InBev’s offer for Grupo Modelo at $12 billion, but some say that number may have been a bit low. Grupo Modelo’s stable of brands includes import superstar Corona Extra, No. 3 import Modelo Especial and Corona Light.

“If it goes down for $12 billion, AB InBev should be arrested for being thieves,” said Bump Williams, president of Bump Williams Consulting Co., Stratford, Conn. He believes the price could go up to as much as $16 billion or $20 billion.

Sweetening that deal—and making it more expensive—is the potential inclusion of the Crown Imports contract for the Modelo brands for the next two years, which could tack more than $2 billion onto the price, according to Williams.

Regardless of the price, whether federal regulators will let the deal go through is a big question mark. The purchase would give AB InBev an even stronger market share in the United States, especially considering the strength of brands such as Corona. For the purchase to occur, AB InBev would have to divest itself of some subpremium brands, such as Natural Light or Busch, Williams speculated.

But others in the beverage industry say that’s a long shot. Aside from the fact that Natural Light and Busch are the top two domestic subpremium beer brands, Busch “is part of the company’s heritage,” said to a source close to the companies. “Those two brands keep the brewery moving.”

The strength of Modelo’s brands in convenience stores are there in black and white in CSP’s 2012 Category Management Handbook: According to SymphonyIRI Group data, Corona Extra is the clear leader in c-store sales of imported beer, with $548.6 million in sales for the 52 weeks ending Dec. 25, 2011. Two slots down at No. 3 is Modelo Especial, with $224.6 million in sales. Corona Light is No. 8 with $40.0 million.

By Jennifer Bulat, Group Director of Editorial Production, CSP
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