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Modelo’s Oz exports seen at risk from SAB-Foster’s

* SABMiller makes $10.1 bln bid for Foster's
* Success might mean problems for Modelo's Corona
* Analysts speculate on Australian distribution

Grupo Modelo's fast-growing export sales to Australia may be at risk if it has to look for a new distributor of its popular Corona brand Down Under if Foster's changes hands, analysts said on Tuesday.

SAB Miller (SAB.L) said it would keep talking to Foster's Group (FGL.AX) after it rejected SAB's A$9.5 billion ($10.1 billion) takeover offer as too low. Investors pushed up Foster shares in anticipation of an improved offer. [ID:nLDE75K1JW]

The possibility of SAB landing a stake or buying out Foster's, which holds a 50 percent and growing market share in Australia and distributes Corona there, could damage Modelo's brand presence, Credit Suisse said in a report.

"SAB Miller does not have a good experience in growing someone else's super-premium brands in a core market (see Amstel in South Africa) and may not want to pay up for Corona earnings that can walk out the front door," analysts Larry Gandler and Carlos Laboy wrote in a report.

"What are its (Modelo's) break-up clauses with Foster's in the event of a change of control at Foster's? For Modelo, it may need a new distributor in Australia."

Modelo declined to provide details about its distribution deal with Foster's. "We don't comment about the terms of the contracts with our importers," a company spokeswoman said.

Analysts, however, believe the agreement is becoming a crucial part of the Mexican brewer's export success.

Modelo's ties with Foster's have been good and are gaining momentum, analysts at Barclays Capital wrote in a report.

On a conference call to discuss first-quarter earnings in April, Modelo executives told analysts that Australia and New Zealand were among its fastest-growing beer markets.

"Specifically in Australia and New Zealand, consumers have showed great preference for our Corona Extra brand that continues gaining market share in the import segment," said Jose Pares, sales and marketing officer at Modelo.

Credit Suisse estimated Corona, Modelo's biggest-selling beer brand, makes up more than 5 percent of Foster's earnings. Australia is an important market for the Mexican firm, just after the United States and the United Kingdom.

Media reports earlier this month said Modelo (GMODELOC.MX) and Molson Coors Brewing Co (TAP.N) were mulling a joint bid for Foster's, but negotiations flopped due to a lack of consensus among the families who control the Mexican brewer.

Modelo has been traditionally averse to taking on debt to expand and has kept its focus on its home market in Mexico.

Modelo, its major shareholder Anheuser-Busch Inbev (ABI.BR) and SAB are seen by analysts as the only three brewers with sufficiently deep pockets to support a bid for Foster's. The company has never confirmed talks with Molson.

22 Jun. 2011

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