By Philip Blenkinsop and David Jones
BRUSSELS/LONDON (Reuters) - Anheuser-Busch InBev's
Mexico's Modelo and Belgian based AB InBev, which has a 50.4 percent non-controlling stake in Modelo, said on Monday they are discussing expanding that relationship.
"These talks may or may not result in the consummation of a deal and any speculation on the terms and conditions is premature," Mexico's Modelo said in a statement.
A deal would give Anheuser-Busch InBev, the world's largest brewer, access to 2 percent to 3 percent annual growth in the Mexican market, and win distribution rights to Corona, the No.1 imported beer brand in the United States. One bank estimated the deal could realize at least $250 million in annual cost savings.
Mexico is the world's sixth biggest beer market and the fourth most profitable, and is a virtual duopoly between Modelo and Heineken
"We believe a take-out price would be closer to $15 billion, equating to a 30 percent control premium in line with historic average brewing premiums," said analysts at Citi, who believe the deal could generate at least $250 million in synergies.
Still, AB InBev must win the approval of the close-knit group of Modelo shareholders - many of whom are related to the company's founders - who control the company.
Banking sources said the two sides were in intensive talks, but the sticking point was the size of the premium the Modelo families can extract from AB InBev.
"The families are willing to sell but they want a big price as they see a big boost for AB InBev from owning 100 percent of Modelo," said one banker close to the talks.
ROCKY RELATIONSHIP
AB InBev inherited its stake in Modelo when InBev bought Anheuser-Busch in 2008 for $52 billion, and after sharply cutting debt and reporting free cash flow of $9.1 billion in 2011, the group has scope to finance a possible deal in cash.
It would be the latest in a series of changes in the global brewing industry as companies seek growth in emerging markets and look to make big savings in procurement and distribution.
In April, AB InBev agreed to buy Dominican Republic's Cerveceria Nacional Dominicana for more than $1.2 billion, while in the same month Molson Coors
A deal between Mexico City-based Modelo and AB InBev could finally end what has been a rocky relationship since 2008, when Modelo launched an arbitration case claiming it was not consulted about InBev's acquisition of Anheuser-Busch.
The way was cleared for AB InBev to increase its Modelo stake when the Mexican brewer lost the case in 2010, but Modelo Chief Executive Carlos Fernandez said at the time that controlling shareholders would not sell their stake.
Modelo shares jumped more than 15 percent on Mexico's stock exchange to 113.35 pesos. The exchange earlier suspended trading in the stock after it soared in early trading.
AB InBev shares, which were suspended by the Belgian regulator ahead of the firm's announcement, rose 2.01 percent.
Shares of Constellation Brands Inc
The joint venture imports and distributes Modelo's beers, including Corona, in the United States.
(Additional reporting by Elinor Comlay in Mexico City and Martinne Geller in New York; Editing by Anna Willard, Jeffrey Benkoe and Phil Berlowitz)
