Beverage Industry

AB InBev, Constellation Brands reach revised Grupo Modelo agreement

February 14, 2013

Anheuser-Busch InBev (AB InBev), Leuven, Belgium, and Constellation Brands Inc., Victor, N.Y., announced a revised agreement that establishes Chicago-based Crown Imports as the No. 3 producer and marketer of beer in the United States through a complete divestiture of Grupo Modelo’s U.S. business. The transaction establishes Crown as a fully owned entity of Constellation and provides Constellation with independent brewing operations, Modelo’s full profit stream from all U.S. sales, and rights in perpetuity to the Grupo Modelo brands distributed by Crown in the United States, according to AB InBev.

As part of AB InBev’s acquisition of the half of Grupo Modelo that it does not already own, AB InBev has agreed to sell Compañía Cervecera de Coahuila, Grupo Modelo’s brewery in Piedras Negras, Mexico, and grant perpetual brand licenses to Constellation for $2.9 billion, subject to a post-closing adjustment. This price is based on an assumed 2012 earnings before interest, taxes, depreciation and amortization (EBITDA) of $310 million earned from manufacturing and licensing the Modelo brands for sale by the Crown joint venture, with an implied multiple of approximately nine times. The sale of the brewery would ensure independence of supply for Crown and provide Constellation with complete control of the production of the Modelo brands for marketing and distribution in the United States.

The two companies also have agreed to a three-year transition services agreement to ensure the smooth transition of the brewery operation. During this timeframe, Constellation says it plans to invest approximately $400 million to expand the Piedras Negras facility, which will then enable it to supply 100 percent of Crown’s needs for the U.S. marketplace. Today, Piedras Negras fulfills approximately 60 percent of Crown’s current demand, according to Constellation.

As previously announced on June 29, 2012, AB InBev agreed to divest Grupo Modelo’s 50 percent stake in Crown, the joint venture between Modelo and Constellation that currently imports and markets Modelo’s brands in the United States, to Constellation. The transaction value remains at $1.85 billion and provides Constellation 100 percent ownership and control of Crown.

Carlos Brito, chief executive officer of AB InBev, commented in a statement: “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. We are pleased to have reached this revised agreement that preserves the merits of the Grupo Modelo transaction while allowing us to move expeditiously to the Modelo integration process and the capture of approximately $1 billion of synergies, up from our original estimate of $600 million.”

Rob Sands, president and chief executive officer of Constellation Brands, added in a statement: “The revised agreement with AB InBev will make Constellation’s Crown beer division a fully independent competitor and the third largest producer and marketer in the U.S. beer industry. 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 U.S. … I am confident that all Constellation and Crown stakeholders, including our valued wholesalers, shareholders and employees, will see the benefits of this amended agreement.”