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.

More from MSN Money

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

112
112 rated 1
270
270 rated 2
444
444 rated 3
693
693 rated 4
637
637 rated 5
692
692 rated 6
615
615 rated 7
498
498 rated 8
265
265 rated 9
126
126 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.