Why Budweiser wants to buy Corona

The deal would give Anheuser-Busch the dominant position in the fast-growing Mexican market. The company is expanding into new regions as its US presence has flattened.

By Kim Peterson Jun 25, 2012 2:00PM
Budweiser maker Anheuser-Busch Inbev (BUD) wants to buy the rest of Grupo Modelo that it doesn't already own. The deal is expensive -- reportedly valued at as much as $15 billion -- but it's a smart move.

In the U.S. market, the deal hands Anheuser-Busch the rights to Corona Extra, the largest import beer. Modelo Especial is the No. 3 import and growing quickly. Anheuser-Busch already owns half of the U.S. beer market, and those two brands would give it a huge advantage. Investors seemed pleased with the idea, sending BUD shares up slightly less than 1% Monday to $70.82.

Post continues below.
But the more attractive part of this deal is the inroads it gives Anheuser-Busch into Mexico, where the company has no game. Mexico is the No. 6 beer market in the world, Reuters reports, but the fourth most profitable. It also has 2% to 3% annual growth.

Modelo and Heineken have a virtual duopoly in Mexico. (Modelo has about 56% of the market.) A-B has been shut out of the Mexican market for too long, and it's trying to change that in a big way.

Anheuser-Busch was handed a 50.4% stake in Modelo when InBev bought Anheuser-Busch in 2008 for $52 million. But even though Anheuser-Busch owned a majority stake in Modelo, it had no real control. The Modelo controlling families retained 56% of the shareholder voting power, Reuters reported. Anheuser-Busch received dividends, but it wasn't able to do much else.

Anheuser-Busch tried to coax Modelo into a merger, but the controlling families wouldn't bite. Modelo was outraged that it wasn't consulted on the deal between A-B and InBev, and filed an arbitration case in the matter, which it lost in 2010. The company still fumed after losing, and said it would not sell any further stake to Anheuser-Busch.

What's changed now? The Modelo families can get a huge premium. Anheuser-Busch shares have shot up 43% over the last year while Modelo shares have risen 41%, and the families are holding out for big money. ""The families are willing to sell but they want a big price as they see a big boost for AB InBev from owning 100% of Modelo," one source told Reuters.

The brewing industry has been going after new markets for a few years. Anheuser-Busch snapped up the maker of Presidente beer, Cerveceria Nacional Dominicana, for $2.5 billion earlier this year. Rival SABMiller (SBMRY) bought the Foster beer brand last year, and Heineken became a major player in Mexico after it bought Femsa Cerveza in 2010. Molson Coors (TAP) set its sights on Central and East Europe, buying StarBev for $3.5 million.

Anheuser-Busch's global expansion comes as its U.S. presence has flagged. Americans are drinking less beer and more wine and spirits. Beer's share of U.S. alcoholic beverage sales fell to 49.8% in 2010 from 55.5% in 2000, reports CanadianBusiness.com. Within the beer category, Budweiser has been slumping for years as craft beer has found new fans.

The only real choice for Anheuser-Busch is to go global, increasing its worldwide presence even as it works on repairing its U.S. brands. But it will be harder to expand internationally in the future, as experts say most of the momentum players have already been picked up.

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15Comments
Jun 25, 2012 2:47PM
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Let me get this straight,  it's against the law for Microsoft to have a monopoly in the computer industry, but it is perfectly okay for Anheuser-Busch to have a monopoly in the beer industry.  
Jun 25, 2012 3:20PM
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Who cares, BUD is not an american company .Why should it make any difference what bud does now.
Jun 25, 2012 3:00PM
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Bud is gross, and hopefully this purhase won't affect the quality of Corona and Modelo, becuase I actually like those beers!
Jun 25, 2012 3:03PM
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Maybe it's because Budweiser in no longer an American Beer as much as they you like you to think they are...
Jun 25, 2012 4:28PM
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Bud will be screwing up another beer. They did that with Rolling Rock and Landshark. Both were good beers until they got manufactured in St, Louis. They are now nothing more than warmed up versions of Bud Light. Probably the same beer with 3 different labels slapped on.
Jun 25, 2012 4:03PM
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If bought by BUD they would screw up the formula. Corona fresh in Mexico is fantastic. Leave it alone.

Jun 25, 2012 5:36PM
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Bud's problems, likwe those of Miller Brewing, are the fault of their own marketing.  They have over-hyped their light beers to the point where they overpower the rest of the marketplace.  The problem is that now Americans seem to think this flaviorless swill is what beer is supposed to taste like and hte product is so watered down that you can't get a buzz without drinking gallons of the stuff.

 

So it's no pruprise that craft beers and imports, which still strive to have some taste, are growing and the mega-brewers are faltering.  That's why the mega-brewers are no longer American owned, and why they are now tryuing to steal control of additional foreign markets.    

Jun 25, 2012 4:45PM
Jun 25, 2012 6:55PM
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I've sat and read most of the post about this and by looking at the spelling errors the majority of people posting about this are drunk lmao
Jun 25, 2012 8:43PM
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Wow, Such a wide expansion of so many minds at once. I have never seen such a gross neglect of ones own knowledge and the fact that so many of you people are self proclaimed "beer geeks"!!. The name Budweiser is a brand. The company who "owned" the brand was Anheuser-Busch. Inbev a monster in the industry based in Belgium, purchased the company for 52 billion, give or take a few cents. Who actually already ownes Bass, Boddingtons, Stella, Lefffe and a few others. The so called swill that you call it paved the way for the micro brewery. Please go ask, see for yourself! Ask the boys at Goose Island who owns a portion of them!! The American economy paved the way for all of the take overs of the large domestic breweries. 52 billion would have been maybe 100 billion in maybe the years 1996 -2000 wow 10 years latr a take over! Presently we are paying twice what would should pay for our favorite micros and please look around at the conditions it brewed in.  Im not beating the Bud drum but come on people think about your intelligence. You all have fallen into the biggest marketing scheme in the beer world of all times, bigger than "Taste Great Less Filling" or the "Bud Frogs" its now hand crafted!! wow run that one up the flag pole at Sam when you ask them if they contract brew or add that term to your list of cool words like Swill!!

Jun 25, 2012 5:55PM
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If they buy Corono I will stop drinking it. Can't stand anything they brew, I'm sure they would just ruin it!
Jun 25, 2012 7:11PM
Jun 25, 2012 3:23PM
Jun 25, 2012 7:11PM
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So the maker of crap American beer will take over making crap Mexican beer, seems to make sense. If you want a decent Mexican cerveza try Pacifico.
Jun 25, 2012 3:35PM
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Guinness RULES!  That other stuff might as well be lemonaid or wine coolers for girls. 

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