The owner of Budweiser and Stella Artois beers said on Friday that it had reached agreement with Modelo's controlling families for it to secure a leading position in a growing domestic beer market and capture the best-selling Mexican beer Corona Extra.

Modelo, founded in 1925, is Mexico's biggest brewer with a 50 percent-plus market share in a virtual duopoly with Heineken's FEMSA Cerveza in the world's fourth-most-profitable beer market. Corona is the biggest imported beer in the lucrative United States market.

AB InBev is attracted to Modelo by a Mexican beer market that is growing at about 3 percent and cost savings that the company said would be at least $600 million a year.

AB InBev said it had added $14 billion of new bank loans to fund the all-cash transaction, adding that it would reduce its net debt/core profit (EBITDA) ratio to 2.0 times during 2014.

Some analysts believe AB InBev could then line up world number two SABMiller as its next acquisition target. Others say that the drinks operations of PepsiCo would make more sense.

AB InBev shares were 0.5 percent higher at 4:05 a.m. EDT (0805 GMT), underperforming in sharply firmer European stock markets and against a 0.9 percent gain on the STOXX European food and beverage index.

"I think the ($20 billion) price is the thing that is putting people off, but I think AB InBev will squeeze out much more in synergy savings than their guidance, so it makes sense," said a London-based beverage analyst who declined to be named.

Two Modelo board members have committed to invest $1.5 billion of their proceeds in AB InBev shares, to be delivered within five years. The pair will also join AB InBev's board.

AB InBev and Modelo confirmed they were in talks on June 25, following a series of deals by big brewers looking to expand in growing beer markets and find ways to cut costs [nL6E8HP9G6].

In April AB InBev agreed to buy the Dominican Republic's Cerveceria Nacional Dominicana for more than $1.2 billion, while in the same month Molson Coors bought East European brewer StarBev for 2.65 billion euros ($3.3 billion). Last year SABMiller purchased Foster's for $11.8 billion.

AB InBev inherited a 50.4 percent stake in Modelo when InBev bought Anheuser-Busch for $52 billion in 2008. The enlarged group had hoped to mop up the rest of the Mexican brewer, but the controlling Fernandez family launched arbitration proceedings, claiming that the deal broke an agreement that Modelo should be consulted over any change in control of the stake.

The arbitration panel ruled in favor of AB InBev in 2010, but since then AB InBev executives have joined the Modelo board and pressure emerged from some family member and other investors to look for a sale.

The new expanded AB InBev would produce about 400 million hectoliters of beer a year, with estimated revenues of $47 billion.

In a related but separate transaction, Modelo would sell its 50 percent stake in joint venture Crown Imports to partner Constellation Brands Inc for $1.85 billion. Crown Imports distributes Modelo beers in the U.S. in a deal that runs to the end of 2016.

If AB InBev had wanted to buy out Constellation and distribute the beer itself, it would have pushed its market share in the United States above 50 percent, leading to anti-trust concerns.

(Additional reporting by David Jones; Editing by David Goodman)

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