InBev bid could spoil Mexican beer party

By Chris Aspin

MEXICO CITY (Reuters) - Belgian brewer InBev's $46 billion bid for U.S. giant Anheuser-Busch Cos Inc will shake up Mexico's cozy beer duopoly.

Modelo, maker of Corona beer, and Femsa, the brewer of Dos Equis lager, sell around 98 percent of all the beer in Mexico and both brewers face significant change if the acquisition goes ahead.

Anheuser Busch BUD.N owns 50 percent of Modelo, the world's No. 7 brewer with a market capitalization of $16 billion, and so any takeover of the maker of Budweiser beer would directly involve the Mexican company.

The two most likely scenarios have Modelo embracing an InBev INTB.BR deal and offering the merged company seats on the Mexican brewer's board, or rejecting the deal and bidding itself to buy back Anheuser-Busch's stake, analysts say.

A buyback is not far fetched as Modelo (GMODELOC.MX) is debt-free and with at least $1 billion in cash on hand.

"It is totally possible," said Scotiabank beverage analyst Francisco Guzman, referring to a buyback which could make Modelo's capital structure more efficient.

Operating control of Modelo, whose Corona is the best-selling foreign beer in the United States, is in the hands of a group of Mexican investors.

Ixe brokerage analyst Marco Reyes says the InBev deal will involve tough negotiations as Modelo has the right to veto any company from taking over Anheuser-Busch's stake in the Mexican brewer.

Mexican bank Banamex, owned by Citigroup (C.N), on Monday downgraded its rating on Modelo stock to 'sell', citing risks from a possibly Anheuser-InBev tie-up. "We believe this is a good time for profit taking," the bank said in a report.

MEXICO GROWING

Also Modelo might want to go it alone on its home turf because Mexico is a lucrative beer market.

"Modelo might just say, 'You know what? Hand over your share'," Reyes said.

A third scenario has Anheuser-Busch looking to buy out Modelo -- possibly to protect itself from any InBev bid by making the asking price too high.

"We think Anheuser-Busch can counter a hostile bid by paying up for the other 50 percent of Modelo ... which could stretch the acquisition cost for InBev by another $10-$15 billion and massively, or maybe protectively, raise the cost of a hostile bid," Credit Suisse analyst Carlos Laboy said.

A deal between InBev and Anheuser-Busch could make the world's 10th-biggest brewer by volume, Femsa (FMX.N) (FMSAUBD.MX), an even more desirable acquisition target as other brewers opt to play catch-up in the size game.