Update Ambev (ABV)

08/02/2010 10:30 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

(I am on vacation until August 24. During that period JubakPicks.Com will operate on a reduced posting schedule of one or at most two posts a day.)

The noose got a little tighter around Mexican brewer Grupo Modelo, Mexico’s largest beer maker.

On July 12 the company lost in arbitration with Anheuser-Busch InBev, the world’s biggest brewer. Grupo Modelo had sought to void the transfer to Anheuser-Busch InBev of the 50% stake of Modelo that Anheuser-Busch owned before the merger with InBev that created the beer giant.

The ruling clears the way for Anheuser-Busch InBev to eventually acquire the rest of Grupo Modelo.

AmBev (ABV), the Brazilian brewer and Pepsi distributor that’s controlled by Anheuser-Busch InBev, isn’t a direct party to any of this arbitration or negotiation. But I think this outcome works in AmBev’s favor.

First, Ambev doesn’t have much of a presence in Mexico and a deal that gave Anheuser-Busch InBev control of Grupo Modelo’s breweries and distribution network could help Ambev, the largest beer company in Latin America, expand brands like Brahma into Mexico. (That would be even more advantageous to AmBev if Anheuser-Busch InBev also wound up signing a distribution deal with the Oxxo convenience-store chain after 2020. The chain accounts for about 14% of the sales for the beer division that Heineken acquired from Femesa.

Second, the results of the arbitration and the resulting reshuffling of the players in the Latin American beer and soft drink market seems to weaken such AmBev competitors as Femesa. That would be good for AmBev’s soft drink business. The company is the largest Pepsi bottler in Latin America but only the No. 2 soft drink company in its Brazilian home market.

On the beer side AmBev is the market leader in Brazil (69% market share), Canada (42%), Argentina (76%), Bolivia (97%), Paraguay (96%), and Uruguay (97%).

As of August 2, I'm leaving my target price at $118 by October 2010.

Full disclosure: I don't own shares of any company mentioned in this post in my personal portfolio. (I used to personally own shares of Ambev but I have liquidated almost all of the individual stock holdings in my personal portfolio and put the cash in my new Jubak Global Equity Fund)
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