AB InBev (BUD) to Acquire Remaining Stake in Grupo Modelo for $20.1B

June 29, 2012 6:30 AM EDT
Anheuser-Busch InBev (NYSE: BUD) and Grupo Modelo, S.A.B. de C.V. entered into an agreement under which Anheuser-Busch InBev will acquire the remaining stake in Grupo Modelo that it does not already own for USD 9.15 per share in cash in a transaction valued at USD 20.1 billion or MXN 278.6 billion[1]. The combination will be completed through a series of steps that will simplify Grupo Modelo's corporate structure, followed by an all-cash tender offer by AB InBev for all outstanding Grupo Modelo shares. The tender price represents a premium of approximately 30% to the closing price of Grupo Modelo series C shares on June 22, 2012.

Grupo Modelo's name, identity, heritage and headquarters in Mexico City will be maintained, and the company will continue to have a local board. Carlos Fernandez, Maria Asuncion Aramburuzabala and Valentin Diez Morodo will continue to play an important role on Grupo Modelo's Board of Directors and AB InBev will seek the board's insights and expertise. Two Grupo Modelo board members will join AB InBev's Board of Directors, and they have committed, only upon tender of their shares, to invest USD 1.5 billion of their proceeds from the tender offer into shares of AB InBev to be delivered within five years via a deferred share instrument.

The existing partnership between AB InBev and Grupo Modelo, which dates back to 1993, is being enhanced through a series of transactions that will simplify and streamline the corporate structure of Grupo Modelo. As part of these transactions, Diblo, S.A. de C.V., the holding company for Grupo Modelo's operating subsidiaries, and Direccion de Fabricas (DIFA), S.A. de C.V., a leading glass bottle manufacturer in Mexico with output largely dedicated to Grupo Modelo, will merge into parent Grupo Modelo for newly issued Grupo Modelo shares. Immediately after the mergers of Diblo and DIFA, AB InBev will commence an all-cash tender offer for all of the outstanding shares of Grupo Modelo that it will not own at that time for a total consideration of USD 20.1 billion or USD 9.15 per share. Both companies' Boards of Directors have approved the transaction.

The tender price of USD 9.15 per share represents a premium of approximately 30%[2] to MXN 97.95, the closing price of Grupo Modelo series C shares on June 22, 2012. The total enterprise value is estimated to be approximately USD 32.2 billion, composed of the consideration in the tender offer, the value of AB InBev's existing stakes in Grupo Modelo and Diblo as well as cash balances and minority interests.

AB InBev has fully committed financing for the purchase of Grupo Modelo's outstanding shares. The company has added USD 14 billion of additional bank facilities to existing liquidity through a new facility agreement which provides for an USD 8 billion three-year term facility and a USD 6 billion term facility with a maximum maturity of two years from the funding date. AB InBev now has total liquidity, between cash and long-term committed facilities, in excess of USD 24 billion. AB InBev expects to be below its targeted net debt to normalized EBITDA ratio of 2.0x during the course of 2014.

In a related transaction announced today, Grupo Modelo will sell its existing 50% stake in Crown Imports, the joint venture that imports and markets Grupo Modelo's brands in the U.S., to Constellation Brands for USD 1.85 billion, giving Constellation Brands 100% ownership and control. As a result, Grupo Modelo's brands will continue to be imported, marketed and distributed independently in the U.S. through Crown Imports on similar economic terms it receives today, while AB InBev will ensure the continuity of supply, quality of products and ability to introduce innovations. Crown Imports will continue to manage all aspects of the business, including making marketing, distribution and pricing decisions.

The companies believe that the synergy potential from the combination would include the expansion of Corona, economies of scale through combined purchasing opportunities, and the sharing of best practices around the world. In addition, AB InBev has a strong track record of successfully completing combinations, integrating businesses and delivering on its financial commitments. The combination is expected to yield annual synergies of at least USD 600 million.

Both companies are leaders in corporate citizenship with a strong commitment to giving back to the communities in which they operate. Together, the combined company would work to mutually enhance their corporate responsibility initiatives for their employees, the environment and consumers. For example, Grupo Modelo's water usage at its breweries is best in class, and AB InBev intends to share these practices across its operations to continue to improve water management at its breweries around the world.

AB InBev looks to learn from the state-of-the-art technology used in Grupo Modelo's newest breweries, which are among the most modern and efficient worldwide.

Grupo Modelo's employees would also benefit from global career development opportunities as well as contribute their skills and experience to the combined organization's continued growth.

The transaction is subject to regulatory approvals in the U.S., Mexico and other countries, the approval of the shareholders of Grupo Modelo in a general meeting and other customary closing conditions. The companies will work proactively with regulators to move through the review process efficiently. It is expected to close during the first quarter of 2013.

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