AB InBev will sell Corona unit to salvage Modelo takeover

, Bloomberg

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Corona-Beer

Anheuser-Busch InBev NV, the world's biggest brewer, offered to cede full control of Corona distribution in the U.S. to Constellation Brands Inc. for $2.9 billion in a bid to salvage its purchase of Grupo Modelo after U.S. regulators sued to block the deal.

Constellation will gain Modelo's brewery in Piedras Negras, which is located in Mexico near the Texas border, and perpetual rights for the Corona and Modelo brands in the U.S., Leuven, Belgium-based AB InBev said Thursday in a statement.

The deal is aimed at appeasing U.S. authorities, who sued to block AB InBev's proposed $20.1 billion purchase of the rest of Modelo on Jan. 31, arguing the merger would hurt competition and lead to higher prices. AB InBev controls almost half the U.S. beer market, while Corona is the country's biggest imported brand. The complaint triggered plunges in shares of AB InBev, Constellation and Modelo.

"Corona in the U.S. was the jewel that they had to sell," said Trevor Stirling, an analyst at Sanford C. Bernstein. "The real prize was getting access to Mexico." The terms of the proposed merger of AB InBev and Grupo Modelo are unchanged.

The sale to Constellation addresses "all of the concerns" presented by the government, the Budweiser maker said Thursday. Selling the Piedras Negras brewery will ensure independence of supply for Crown Imports LLC, a joint venture between Modelo and Constellation. AB InBev had earlier agreed to sell Modelo's 50 percent stake in Crown to Constellation for $1.85 billion.

Shares Jump

AB InBev shares rose as much as 6.1 percent in Brussels trading, the steepest gain since Aug. 1. The stock was up 5.1 percent at 69.04 euros as of 10:06 a.m., almost back to where it was before the U.S. sued to block the Modelo purchase.

Buying the rest of the Mexican brewer will lead to $1 billion of revenue and cost benefits, AB InBev said Thursday, higher than a previous forecast of $600 million.

"This is a very positive sign as some had feared that the sale of Piedras Negras would undermine the cost synergy potential for ABI in Mexico," Melissa Earlam, an analyst at UBS AG in London, said Thursday in a note to clients.

The Belgian company agreed to buy the 50 percent of Modelo it didn't own in June 2012, seeking to increase its penetration of emerging markets. The merger remains subject to the challenge by the U.S. and the revised agreement with Constellation is conditional on that approval.

'About Mexico'

"We believe this addresses the Department of Justice's concerns surrounding the ABI-Modelo deal and thus now expect the deal to go through," Dirk Van Vlaanderen, an analyst at Jefferies International in London, wrote in a report.

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