Constellation Brands would eye deals

Is it just idle talk? Or does Constellation really have the financial umph to buy Foster’s former wine division, now listed on the Australian stock market under Treasury Wine Estates? In May 2011 Constellation Brands said they would evaluate an acquisition of Australia’s Treasury Wine Estates if the newly independent Treasury was up for sale.

Constellation, the world’s largest wine maker, has grown through acquisitions, such as by buying Ravenswood in 2001, Robert Mondavi in 2004 and the wine portfolio of Fortune Brands in 2007.

More recently, the USD 3.3 billion turnover company has been paying down debt, which peaked at almost USD 5.3 billion in 2008. As of the end of February 2011, Constellation had USD 3.2 billion of debt (3.6 times EBITDA) and just announced a share buyback programme.

Still, acquisitions are not out of the question, especially if the targets are accretive and fit with the company’s premium positioned portfolio of wine, spirits and beer.

In an interview Constellation’s CEO Rob Sands said that he was not terribly worried about a rival acquiring Treasury instead, noting that there are no other wine companies of the size likely to be needed to pull off such a deal, and that spirits companies are more focused on spirits.

Treasury Wine Estates has a market capitalisation of AUD 2.2 billion.

He noted that private equity firms have in the past invested in the wine industry, but said there may not be enough cost savings to wring out of Treasury to make it worthwhile for such a buyer.

Which puts Constellation in the centre of takeover fantasies – as was probably intended.