A few days after completing the acquisition of Grupo Modelo (with the exception of about 5% of quoted minorities which can still tender their shares), AB InBev announced it has also completed the earlier agreed sale of Grupo Modelo’s US business to Constellation Brands, for $ 4.75bn.
The sale was a condition from the US authorities to approve the acquisition of Grupo Modelo by AB InBev. Recall that Constellation not only acquires the remaining 50% in Crown Imports that it did not yet own, but also the perpetual rights of Grupo Modelo’s brands in the US and the Piedras Negras brewery in the North of Mexico, of which capacity will be expanded in order to fully service Constellation’s needs of Grupo Modelo beers for the US market in the future. The agreement also includes a 3-year transition period, during which AB InBev will continue to supply Constellation with Grupo Modelo beers for the US market. After three years, the Piedras Negras brewery should then have been expanded from about 10m hl to 15m hl.
The completion of the deal with Constellation is no surprise after last week’s announcement of the completion of the $ 20.1bn Grupo Modelo transaction. We continue to believe that, despite the additional concessions made (like the sale of Piedras Negras brewery), the acquisition of Grupo Modelo makes a lot of sense for ABI, adding a new, profitable growth market (Mexico) to the portfolio, while also offering synergies potential from a wider distribution of Corona internationally. We continue to like ABI for its strong market positions in a number of very profitable beer markets (mainly US, Brazil and now also Mexico), good execution skills & great acquisition track record. However, valuation is no bargain, and recent BRL weakness as well as disappointing 1Q organic volume growth prompt us to reiterate our Hold rating.