Constellation seen as the big winner from the AB-InBev-Modelo deal
As we reported on 2 July 2012, U.S. wine company Constellation Brands is one to benefit big time from the AB-InBev-Modelo deal. In a side deal meant to allay antitrust concerns over the Modelo purchase, Constellation Brands has entered into an agreement with AB-InBev to acquire the remaining 50 percent stake of Crown Imports, the Corona importer in the United States.
Per the agreement, Constellation Brands will pay USD 1.85 billion (EUR 1.5 billion) to complete the Crown Import acquisition and will hold the right of distribution, marketing and pricing of Modelo’s brands in the United States. AB-InBev will be responsible for maintaining the supply and quality of products along with innovations.
Crown Imports, the Modelo-Constellation joint-venture, had USD 2.5 billion in sales last year with EBIT standing at USD 430 million (EUR 345 million). It is the number three beer supplier in the U.S. with an estimated 6 percent of the market. Corona is the leading U.S. imported beer, and Crown’s Modelo Especial is number three.
Many think that the Crown purchase could heighten pressure on Dutch brewer Heineken, the fourth-largest U.S. supplier, with roughly 4 percent of the market.
After the completion of the deal, Constellation Brands will become – on a volume basis – the third-largest beverage alcohol company in the United States.
During fiscal 2012 Constellation Brands earned USD 215 million in EBIT from Crown Imports which was half of Constellation’s total earnings. Therefore, Constellation Brands believes the acquisition will add significantly to its profits.
Constellation Brands is not exactly loaded with cash to fund the acquisition and will have to ask the banks to help it out. It is anticipated that the acquisition will increase Constellation Brands’ debt to over 4 times EBITDA, which is a lot.
However, in the next 12 months, Constellation Brands expects to generate a strong free cash flow which will bring its debt load down to its targeted range of 3 to 4 times EBITDA.
The financial markets liked the way the AB-InBev-Modelo deal turned out for Constellation Brands. It will allow the wine company to diversify more into beer and take on other beer brands, too, just as the U.S. beer industry is returning to growth after three straight years of decline.
U.S. beer shipments rose 2.2 percent in the first four months of this year from a year earlier, according to the Beer Institute, an industry group, while Crown’s volume increased 7.2 percent in the past three months. AB-InBev’s volume was flat, it was reported.
Constellation Brands said it hopes to close the Crown acquisition in the first quarter 2013.
