Shares of Constellation Brands Inc. jumped Monday following a report that Anheuser-Busch InBev NV may soon buy Mexican beer maker Grupo Modelo SA, with which Constellation has a joint venture.
THE SPARK: Belgium-based Anheuser-Busch InBev confirmed on Monday it is in talks to control of Grupo Modelo, which makes Corona and other globally popular beers.
The timing is uncertain, and the company said there is no guarantee the talks will lead to a deal.
The deal could be valued at more than $12 billion, according to a Wall Street Journal report.
Constellation Brands has joint venture, Crown Imports, with Grupo Modelo, to import moderately priced beers such as Corona Extra, Tsingtao and St. Pauli Girl into the U.S.
THE BIG PICTURE: Anheuser-Busch InBev, based in Belgium, already has a 50 percent stake in Mexico's largest brewer. A deal would give it control of popular global brands such as Corona and Modelo Especial, as well as help it tap into the fast-growing Latino market.
It could prove fruitful for Victor, N.Y.-based Constellation as well. Investors are betting that if a deal with InBev succeeds, Modelo would be forced to buy Constellation's half of the stake in the joint venture at a significant premium.
THE ANALYSIS: Stifel Nicolaus analyst Mark Swartzberg said in a note to clients that the way he reads the contract, Modelo would be forced to make the maximum payment to Constellation to end the joint venture if Anheuser-Busch InBev buys the company. This could mean a payment of roughly eight times the future earnings of the joint venture.
The deal, however, still faces potential antitrust hurdles with regulators, given the market share of both companies in the U.S.
SHARE ACTION: Shares of Constellation Brands jumped $2.51, nearly 13 percent, to $21.88 on volume about five times normal trading. It was one of the top gainers on the S&P 500. The stock has changed hands between $16.42 and $24.87 in the past 52 weeks.
U.S.-traded shares of Anheuser-Busch InBev NV added 49 cents to $70.78.
- Grupo Modelo