What’s Grupo Modelo up to?
Carlos Fernandez, the CEO of Mexico’s major brewer Grupo Modelo must know what he’s doing. Not only has he reiterated at a recent conference call that his company under no circumstances would sell its shares to its part-partner Anheuser-Busch, thus angering some of his shareholders with his blatant arrogance. Grupo Modelo on 16 October 2008 also has filed a notice of arbitration against Anheuser-Busch Cos. Inc., saying that the company’s pending sale to InBev violates their investment agreement.
Since the USD 52 billion deal to sell the brewer of Budweiser and Bud Light to InBev was announced this summer, Grupo Modelo, Mexico’s largest brewer, has said that it has consent rights over the deal. The company, which is 50 percent owned by Anheuser-Busch, had been in talks with InBev related to that.
In late July, Grupo Modelo Chief Executive Officer Carlos Fernandez said the company has rights to be able to choose whether it enters a partnership with InBev.
On 16 October 2008, the company, which is controlled by a small group of shareholders, filed a suit of arbitration against Anheuser-Busch in an attempt to exercise these rights. It said in a news release its investment agreement under Mexican law prohibits Anheuser-Busch from taking actions that would mean a transfer or sale of its interests in Grupo Modelo to a competitor in the beer business. The catch phrase on which Grupo Modelo builds its case is “under Mexican law”. The brewer believes that under Mexican law its shareholders would have the right to buy back the shares in Modelo and its subsidiary, Diblo, which would be transferred by Anheuser-Busch to InBev. Anheuser-Busch’s roughly 50 percent stake in the company is non-controlling.
Anheuser-Busch and Belgian brewer InBev said in separate statements that they believed Grupo Modelo’s claims had no merit.
Both companies said the arbitration would have no impact on the deal and it would close by the end of the year as expected.
Shareholders of Belgian-based InBev, maker of Stella Artois, Beck’s and Bass, approved the deal in late September. Anheuser-Busch’s shareholders are set to vote on it on 12 November.
So what is Grupo Modelo playing at? At the moment the board with its “under no circumstances” attitude is angering those shareholders who might like to sell out to InBev if the price were right. That means that Grupo Modelo must have a long-term plan of sorts to engage in a public spat with Anheuser-Busch and InBev.
Media commentators have refrained from speculating why Grupo Modelo has filed a notice of arbitration. Without saying as much, many probably believe that Grupo Modelo is engaging in what in the boxing world would be called “shadow-boxing”. After all, if Grupo Modelo had really wanted the deal to collapse it would have been asking for an injunction outright.
It did not.
Given that the case may take perhaps up to a year (I am guessing) before it is settled, Anheuser-Busch, by that time, will have been fully integrated into the InBev system. Now why would Grupo Modelo pursue arbitration well aware of the fact that the verdict will come too late to have any material impact on the contested sale?
The interesting aspect to arbitration is that the claimant, Grupo Modelo, has to submit a statement of claim. Something along the lines of …. “if the verdict is in my favour I want this and this …”
To date, Grupo Modelo has refrained from disclosing what is in its statement of claim. Again, I am guessing. But let’s assume that Grupo Modelo eventually will be vindicated by the court of arbitration. Then its chances of buying back its shares at a discounted price are high – provided this is what its statement of claim reads.
If this is what Mr Fernandez is gambling at – buying back his shares for cheap in order to sell the company lock stock and barrel to the highest bidder – then the arbitration proceedings make great sense.
