Beer to oil the Mexican economy

Mexico’s Government has proposed hiking the excise tax on beer to 28 percent next year from 25 percent, and is also seeking a new 2 percent sales tax on all goods and services as a way of recovering lost revenue from lower oil production, it was reported.

In an interview with local media, Grupo Modelo’s CEO Carlos Fernandez said in October 2009 that the increased tax burden would have to be passed on to consumers via higher prices for the company’s products.

"That would surely reduce volumes and have an impact on investment and also the labour force," Mr Fernandez was reported as saying.

Grupo Modelo is Mexico’s biggest brewer and maker of the Corona Extra brand.

Its local competitor, FEMSA, has confirmed that it is in talks with several companies involving its beer unit. SABMiller and Heineken were said to be interested in buying FEMSA Cerveza which produces the Sol, Tecate and Dos Equis beer brands.

The news of the potential sale caused FEMSA’s shares to soar in October and also pushed Grupo Modelo’s shares higher as it fuelled further takeover speculation, this time involving Grupo Modelo itself.

AB-InBev have a 50 percent non-controlling stake in Grupo Modelo, which InBev acquired last year along with Anheuser-Busch. Although Grupo Modelo and AB-InBev are currently involved in arbitration over last year’s takeover of Anheuser-Busch, which – according to Grupo Modelo – violates provisions of its investment agreement with Anheuser-Busch, it is widely believed that Grupo Modelo will eventually align itself with AB-InBev lock, stock and barrel.

In the meantime Grupo Modelo is seeking USD 2.5 billion in compensation from AB-InBev according to media reports.

The arbitration decision is expected by the end of the year.