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CONSTELLATION BRANDS APPEARS CLEAR WINNER UNDER REVISED DEAL TERMS

AB InBev agrees $2.9bn asset sale to shake off Feds over Modelo deal

By Ben Bouckley+

14-Feb-2013
Last updated on 15-Feb-2013 at 16:24 GMT

Anheuser-Busch InBev (AB InBev) has agreed to sell a massive Grupo Modelo brewery to Constellation Brands as part of a $2.9bn transaction, to defuse a US legal fight over its takeover of the Mexican brewer.

In a significant shift, aimed at appeasing the US Justice Department, after the Federal body launched a lawsuit to block the deal last week, AB InBev is selling full US rights to the Corona and Modelo brands to Constellation as part of the $2.9bn transaction.

Emphasizing that the new terms established Crown Imports as a stronger independent competitor, AB InBev said it addressed all the Justice Department concerns regarding its planned full takeover of Grupo Modelo for $20.1bn, “leaving no doubt about Constellation’s Crown beer division’s complete independence and ability to compete”.

Carlos Brito, CEO, AB InBev, said: “The AB InBev and Grupo Modelo transaction has always been about Mexico and making Corona more global in all markets other than the U.S., where the brands will be owned and managed by Constellation.

'Transformational acquisition' for Constellation Brands

Constellation Brands appears to be the clear winner under the revised deal, and Rob Sands, President and CEO said:  This is a transformational acquisition for our company as we will hold perpetual rights to Corona and the Modelo brands distributed by Crown in the U.S.

“We will have autonomous control of production, distribution, marketing and promotion of these brands in the US.”

Constellation will still acquire the 50% of Crown Imports that it does not own for $1.85bn, and the deal's terms are otherwise unchanged, although AB InBev has revised estimated synergy savings stemming from its Modelo takeover upwards, from $600m to $1bn.

The complete divestiture of Grupo Modelo’s US business establishes Crown Imports as the nation’s Number Three producer and marketer of beer, and, crucially (in light of the Justice Department’s suit alleging its dependence on rival AB InBev for beer supplies under the original terms of the proposed transaction) provides Constellation with independent brewing operations.

Constellation will also accrue profits from all Modelo US sales, where the price of the Piedras Negras brewery near the Texas border and the brands  is based on a circa. x9 multiple, assuming an estimated 2012 EBITDA of $310m on the manufacturing and licensing of Modelo brands for sale via the current Crown Imports JV.

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