The stock of Anheuser Busch InBev SA (BUD), which is the world's largest brewer, appears poised to gain in coming weeks from the completion of a major acquisition that could place the popular beer maker in an even more dominant position in several emerging markets. Shares of the Belgian-based Anheuser Busch InBev SA are currently trading at $96.26 per share and up approximately 30 percent since the company officially went public with its intention to purchase the remaining half of Grupo Modelo SA de CV in an early morning announcement on June 29, 2012.
The first trading session after the public declaration of the $20.1 billion acquisition of the maker of popular Mexican beers such as Corona Extra from the privately held family ownership group saw BUD stock gap to open at $76.81 from a previous closing price of $73.39 per share. Since that opening gap in the wake of the Grupo Modelo buyout announcement, BUD has only tested the $76 per share level on three separate trading sessions in late July 2012. On each occasion, the $76 per share level established by the Grupo Modelo buyout opening gap has held, both on intraday and closing prices, which indicates this price is a solid support level based on the market's understanding of the impact of the acquisition of the iconic Mexican brewer.
Particularly significant to the story of BUD's stock is the rollercoaster of uncertainty that clouded the timetable and likelihood of the deal after regulatory and anti-trust lawsuits were filed by the U.S. Department of Justice on January 31, 2013. Anheuser Busch InBev SA was rattled by the lawsuit from the Department of Justice, which sought to block the Grupo Modelo acquisition on the grounds that it could translate into higher beer prices in the United States. Currently, BUD controls about half of the U.S. beer market and would have possessed even greater power over its domestic competitors in the view of the Department of Justice. Ironically, the Grupo Modelo acquisition was less about enhancing its American market dominance - Corona Extra is the most popular imported beer in the U.S. and fifth-most popular beer in the country overall - than it was purchasing iconic brands to profit from the fast-growing market in Mexico. Notably, the Mexican government's National Foreign Investment Commission had already given the acquisition of Grupo Modelo by Anheuser Busch InBev SA the greenlight to go ahead only a month and a half before on December 10, 2012. Shares of BUD greeted the Department of Justice lawsuit with a 6 percent sell-off on the afternoon the legal action was issued publicly, dropping from an open of $94.32 to close at $88.60 per share on over two and a half times greater trading volume than the day the Grupo Modelo buyout was originally announced on June 29, 2012.
The Grupo Modelo deal seemed increasingly unlikely as shares dipped further during the week after the Department of Justice lawsuit. BUD stock hit a low of $85.14 per share before rebounding as Anheuser Busch InBev released details on February 14, that it had forged an agreement with Constellation Brands to sell sole control of the full distribution rights to Corona and Modelo beers in the United States, as well as a large brewery operation in Mexico near the Texas border, for approximately $2.9 billion. The deal would give Anheuser Busch InBev the rest of Grupo Modelo, which ensures its control over the globally popular Corona Extra beer throughout the rest of the world. In return, the Department of Justice agreed to settle its lawsuit that had sought to block BUD from acquiring Grupo Modelo. On the day of the announced joint venture between Anheuser Busch InBev and Constellation Brands, the stock of STZ skyrocketed 37 percent while BUD shares gapped open from $88.26 to $92.80 per share before closing around that price level.
The next two months were filled with legal negotiations between Grupo Modelo and the Department of Justice to settle the lawsuit so that the acquisition could proceed. During that time, BUD experienced further gains that took the stock to its 52-week high of $101.86 on April 10, 2013. The official announcement of the Department of Justice settlement arrived over the weekend of April 20, and BUD shares essentially have remained in a tight trading range between $100 and $94 per share since the resolution of the regulatory dispute became public. Significantly, Anheuser Busch InBev released disappointing earnings on April 30, that missed estimates and management blamed weather conditions in Brazil for the lackluster performance. Despite this setback, shares of BUD have not tested the $92.80 price level that represents the gap open on February 14, when the company released the information regarding the Constellation Brands agreement that essentially set the stage for the Grupo Modelo acquisition to go forward with regulators. The intraday high on February 14, was $94.14, which is the support level that held in the wake of the market's negative reaction to the disappointing first-quarter 2013 earnings. The $94 per share price level was also precisely where BUD was trading prior to the public announcement of the Department of Justice lawsuit on January 31. For these reasons, the $94 price level is key support that represents the bottom of BUD's current trading range and should be viewed as a point where buyers put a bid under the stock.
From a further technical perspective, BUD shares are currently trading right at a convergence of its 8-day, 20-day, and 50-day exponential moving averages around the $96 per share level. The moving average convergence/divergence technicals on a daily setup, using the 8, 17, 9 settings that are ideal for pinpointing optimal entry points, reveal that a significant crossing occurred earlier in the week on May 7. The last time a similar - virtually identical - setup was shown on this MACD indicator was in mid November 2012, which was followed by BUD shares rallying from $82 to $89 per share over the course of approximately two weeks.
The confluence of the current BUD stock price trading at the $96 price level at its key 8-day, 20-day, and 50-day EMAs, the MACD-crossing flashing an ideal entry point, and shares trading near the vital support level of $94, which represents both the February 14, high and the bottom of the current trading range, all combine to make this an optimal time to take a position in Anheuser Busch InBev. The acquisition of Grupo Modelo by Anheuser Busch InBev SA is anticipated to be completed on May 31, and BUD is not due to report its second-quarter 2013 earnings until the end of July.