Analysis: Modelo's uncertain future could hit stock for now

MEXICO CITY (Reuters) - Grupo Modelo's loss of its arbitration against partner Anheuser-Busch InBev NV could put some short-term pressure on its stock price while the Belgian brewer works out its U.S. plans and shareholders ponder a possible stake sale.

Grupo Modelo said on Monday it lost the arbitration case it started against Anheuser-Busch, which owns 50.2 percent of the Mexican brewer, in October 2008.

"We expect a short-term negative impact on the stock, a bit of volatility while the information is digested," said Ana Paula Pedroni with Ixe brokerage in Mexico City.

Modelo, which exports five premium brands including Negra Modelo, was in negative territory for most of Monday after the arbitration news, but ended up 0.66 percent on the Mexican stock exchange. On Tuesday it was up 1.1 percent on thin volume.

AB InBev's shares rose 1.6 percent in Brussels, building on Monday's gain of 1.25 percent.

Modelo, maker of Corona beer, claimed $2.5 billion in the dispute on the grounds that it was not consulted about InBev's $52 billion acquisition of Anheuser-Busch, which created Anheuser-Busch InBev, the world's top brewer.

Analysts believe Modelo shareholders could still consider selling the other half of the company to AB InBev, but such a move might take time.

"The market's immediate conclusion may be that AB InBev could try to take control of Modelo although ... the fact there is no such announcement with the resolution of the arbitration implies it is not immediately on the cards," said Barclays Capital.

Modelo said its business relationship with AB InBev would not change after the panel's decision and its shareholding structure remained intact, but market watchers think both companies could sit and talk business again.

"We believe it is a matter of how and when, not if," said UBS on Tuesday. "Even if the relationship has deteriorated during the arbitration process, we believe both managers have incentives to restart merger and acquisition talks."

A Modelo spokeswoman said the company could not speculate about the decisions that the controlling shareholders might take. "We know they are very satisfied with Grupo Modelo results," she said.

Ixe's Pedroni said a potential sale by Modelo shareholders would not come easy. "It is a process that takes a long time. FEMSA took two years to decide selling its beer business," she said. "It is not something that happens overnight."

FEMSA, Mexico's No. 2 beer maker, sold its beer unit to Dutch brewer Heineken NV earlier this year.

Modelo share price doubled since launching the arbitration against AB InBev in the last quarter of 2008 until rival FEMSA announced it was selling its beer business in January of this year. Modelo's share price has declined 7 percent since then.

U.S. PLANS KEY

Investors are now wondering whether AB InBev might turn to Modelo to boost its U.S. import segment.

If it did not, it could be a blow to the Mexican brewer because of AB InBev's distribution muscle in the United States. The nearly two-year old arbitration prevented both companies from deepening marketing plans.

"Relationships between AB InBev and Modelo could either involve further cooperation on efficiencies, or, on a negative note, stronger competition in the United States, where AB InBev has a need to fill a market share gap in the import segment," Barclays said.

The Mexican brewer, which has more than 60 percent of the local beer industry, sells AB InBev's Budweiser and Bud Light in Mexico. AB InBev does not currently sell Modelo's beer in the United States.

Modelo sells five of its beers in the United States through a separate distribution venture, Crown Imports, with U.S. wine and spirits maker Constellation Brands Inc.

The Mexican brewer has a pending legal dispute with Constellation over their U.S. venture. Crown faces pressure from other imported beers and lower-priced domestic beers, which have grown more attractive to price-conscious consumers.

Export volumes to the U.S. were about flat in the first quarter of 2010 with a year earlier, Modelo said in April.

The possibility of AB InBev opting for a solution for its U.S. import market that excludes Modelo could cause share price weakness for the Mexican brewer, analysts said.

"Important strategic issues remain unsolved: we are waiting for more clarity from the company on how will they manage the relationship with AB InBev from an operational standpoint," said a report from Credit Suisse.

Analysts hope Modelo will elaborate on its plans during a second-quarter earnings results call scheduled for next week.

(Editing by Gerald E. McCormick)