« Fashion Icon and Burlesque Performer will Represent Cointreau Worldwide | Main | Let the Holiday Wine Recommendations Begin: »
November 13, 2007
Constellation Brands Buys Fortune Brands Wineries
Fortune Brands, Inc. and Constellation Brands, Inc. announced a definitive agreement for the sale of Fortune Brands' U.S. wine business to Constellation Brands for $885 million.
The sale includes brands such as Clos du Bois, Geyser Peak, Wild Horse, Buena Vista Carneros and Gary Farrell, as well as the associated vineyards, winemaking, as well as more than 1,500 acres of vineyards in California and the five California wineries. The company said the wine brands included in the transaction had 2006 sales of 2.6 million 9-liter cases and revenue of $214 million including excise taxes.
Fortune Brands will retain the Harveys sherry and Cockburns port brands.
The company will receive about $840 million after taxes, and will realize a gain of about $50 million to $60 million on the sale.
Fortune Brands said the move allows it to focus on its higher-margin spirits business, while Constellation said the move bolsters its position in the U.S. premium wine business.
The sale, expected to close by Dec. 31, 2007, is expected to 'slightly' reduce both companies' 2008 earnings. Constellation, which is financing the deal with debt, said the purchase will add slightly to earnings per share in 2009.
Just a few months ago, when Beam sold William Hill Winery and Canyon Road Winery to E. & J. Gallo, Beam’s PR director, Mary Burnham, implied the company was no longer in selling mode.
“We made a decision [to] focus on the [California] brands that enhance our longterm success: Atlas Peak and Buena Vista.”
The change of heart, Burnham now says, is because “Global and Beam decided to focus the company’s resources on the higher return premium spirits business, rather than the wine business.” That, despite the fact that Beam’s California portfolio has experienced double-digit growth in the first three quarters of 2007, according to Burnham.
Why did Fortune change its mind? “Fortune had to ask, are we better off having those brands or the money?” says Vic Motto, CEO of Global Wine Partners, an international wine investment bank. With competition such as Constellation, Gallo, Diageo and The Wine Group, Fortune decided Beam had no chance of becoming a major player in American wine.
Constellation’s vice president for corporate communications, Mike Martin, says the New York-based company bought the wineries “because they’re an excellent fit with the existing Constellation brands portfolio. Look at Clos du Bois. They’re the #1 super-premium winery in the U.S. from a value and revenue standpoint.”
Constellation’s share of the U.S. wine market will rise from 19% to 20% with the latest acquisitions, Martin says. Constellation is the country’s biggest in terms of revenue dollars, he adds, while Gallo remains the larest in terms of case volume.
Constellation, which is financing the deal with debt, said the purchase will add slightly to earnings per share in 2009.
Fortune Brands was advised on the transaction by Citi (NYSE:C) and Credit Suisse as financial advisers and Pillsbury Winthrop Shaw Pittman as legal adviser
Fortune Brands, Inc. (NYSE: FO) and Constellation Brands, Inc. (NYSE: STZ)
About Constellation Brands:
Constellation Brands is an international producer and marketer of wine, imported beer and spirits. It boasts that it is the largest wine company in the world and the largest multi-category supplier of beverage alcohol in the US.
Constellation has two operating divisions – Constellation Wines and Constellation Beer & Spirits.
The company operates over 43 production facilities, has close to 7,500 employees and sells its products in more than 60 countries.
Canandaigua Industries Company was formed in 1945, with the aim to sell bulk wine in barrels to bottlers. In 1973, following several acquisitions, the company went public as Canandaigua Wine Company Inc. Canandaigua Brands Inc. was formed in 1997 as the parent company of Canandaigua Wine Company. The company changed its name in 2000 to Constellation Brands Inc.
Constellations biggest acquisition came in 2004, when it bought Californian wine company the Robert Mondavi Corporation.
About Fortune Brands:
Fortune Brands is a US$7 billion consumer brands company. It has powerful brands in four attractive consumer categories: Home & Hardware, Spirits & Wine, Golf equipment and Office products.
The company employs 32,000 people.
Fortune Brand’s wine and spirits division is Beam Global Spirits & Wine, which manufactures and markets more than 80 brands in 160 countries. Its portfolio of brands has it positioned as an industry leader in the Bourbon whiskey, ultra-premium spirits and cordial & liqueur categories.
The company also has Future Brands LLC, a joint venture between Jim Beam Brands Co. and The Absolut Spirits Company, providing sales and distribution services for the US brand portfolio of both companies.
Peak Wines International, Inc, operates Jim Beam’s wineries, including Geyser Peak and Wild Horse. Meanwhile, in markets outside the US, sales and distribution services for the Jim Beam Brands Worldwide spirits portfolio are provided by Maxxium Worldwide.
Note: the above descriptions will need updating post December sale...
Sources: Steve Heimoff and Thomson Financial, November 13, 2007
Posted by fortna at November 13, 2007 08:43 AM
Trackback Pings
TrackBack URL for this entry:
http://www.avenuevine.com/movabletype/mt-tb.cgi/3418
Comments
REVIEW: FORTUNE SELLS WINE, CLEARS PATH TO ABSOLUT. Lots of Constellation news this week. On Monday (Nov. 14), Constellation announced it struck a deal to acquire Beam Global's (a part of Fortune) wine business for $885 million. Fortune said that after initiating a sales process, the company reviewed "multiple" offers (Diageo and E&J Gallo) and ultimately formed an agreement with Constellation. The deal is expected to be closed by December 2007.
"We would expect Constellation to move forward with sale-leaseback transactions on these properties, as they did after the Mondavi acquisition. Therefore, the net investment, at the end of the day may be much lower," said analyst Tim Ramey of D.A. Davidson.
In all, the acquisition includes a 2.6 million case business with $214 million in sales, with 1,500 acres of vineyards in Napa, Sonoma and Carneros as well as five California wineries.
BEAM GLOBAL FREE FOR ABSOLUT. Beam Global said it opted to shed its wine business in favor of building a strong spirits segment. As Norm Wesley put it, because "the wine industry is lower margin and more capital intensive than spirits, it's naturally a lower return segment relative to our spirits business." In all, selling the wine will enable Beam Global to "focus resources on the higher return premium spirits segment of our business."
Because Fortune Brands' spirits and wine brands each have separate sales organizations, the company does not expect the sale to be disruptive to its spirits portfolio.
So what does this all mean? Many analysts and industry insiders believe Fortune must be confident in getting Absolut if it is willing to shed its wine business.
"We believe that this sale increases the probability that Fortune Brands will be the most likely buyer of the Absolut Vodka brand from V&S," said Kaumil.
"Fortune management has stated they are confident they can finance a deal for Absolut, but we believe this further strengthens their ability to do so independently," he continued.
Beam will continue to hold the Harveys Sherry and Cockburn Port, brands, both of which are fortified wines.
WHAT THIS MEANS FOR CONSTELLATION. In a conference call yesterday, Constellation ceo Rob Sands commented that brands such as Clos du Bois, Geyser Peak, Wild Horse, Buena Vista, XYZin and Gary Farrell will help fulfill Constellation's goal of building its super-premium and luxury portfolio.
Does this mean Constellation's wine business will take center stage in the future? CEO Rob Sands said the company will continue focusing on building its wine and spirits premium business, despite the recent consolidation in wine.
"We're still interested in the premium spirits markets and we'll continue to look at the wine side in addition to that...there's no change in our philosophy when it comes to premiumizing our wine and spirits business."
However, UBS analyst Kaumil Gajrawala believes the "wine acquisition limits the possibility of any future near-term deals."
HIGHER INVENTORY MEANS LOWER NET SALES. Meanwhile, Constellation cfo Bob Ryder said the consolidation will result in high levels of distributor inventory in the current quarter, which will result in net sales below normal levels. In order to bring inventory down to Constellation's targeted range, shipments will be light in the first couple of months. The company declined to give any numbers.
Here's the good news. The abundancy in shipments will not hurt retail sales which the company expects to continue at a strong rate. Also, distributor inventory will likely return to normal levels by fiscal 2009 in February. When asked if Fortune had made a mistake with shipments, Rob that it was simply "a difference between Fortune's targeted levels and our [Constellation's] targeted levels."
Furthermore, Rob said distributors will not be overly affected by the acquisition.
"There are no material distributor changes because there is almost a 100% overlap between major Fortune and Constellation distributors."
Posted by: Megan Haverkorn at November 14, 2007 04:30 PM