The owner of Budweiser and Stella Artois beers said on Friday it had reached agreement with Modelo's controlling families giving it a leading position in a growing domestic beer market and the best-selling Mexican beer Corona Extra.
Modelo founded in 1925, is Mexico's biggest brewer with a 50 per cent plus market share where it operates in a virtual duopoly with Heineken's FEMSA Cerveza, while Corona is the biggest imported beer in the lucrative United States market.
AB InBev is attracted to Modelo by a Mexican beer market growing at around three percent a year and cost savings that the company said would be at least $600m per year.
AB InBev said it had added $14bn of new bank loans to fund the all-cash transaction.
Two Modelo board members had committed to invest $1.5bn of their proceeds in AB InBev shares to be delivered within five years. The two would also join AB InBev's board.
In a related but separate transaction, Modelo would sell its 50 per cent stake in joint venture Crown Imports to partner Constellation Brands Inc for $1.85bn. Crown Imports distributes Modelo beers in the US 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 to above 50 percent, leading to anti-trust concerns.