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Constellation Brands Revises Terms With Gallo, Cuts Deal Value
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Constellation Brands, Inc. (STZ - Free Report) recently agreed to revise the terms of its original deal pertaining to divestiture of its certain wine and spirits business to E. & J. Gallo Winery. The Federal Trade Commission’s (FTC) competitive concerns related to the Sparkling Wine, Brandy, Dessert Wine, and Concentrate categories prompted the revision of the deal. The transaction, subjected to the FTC’s approval, is now likely to conclude by fiscal 2020 end.
Delving Deeper
In April this year, Constellation Brands had agreed to divest nearly 30 low-end brands from its wine & spirits portfolio, priced at or below $11 per bottle, to E. & J. Gallo Winery. The contract also included the divestiture of related facilities in California, New York and Washington. Notably, the deal, which is being superseded by the revised agreement, was valued at $1.7 billion. However, the revised adjusted deal value is worth about $1.1 billion, of which, $250 million is an earnout on the divested brand performance in a two-year period after closure of the deal.
Owing to the revised terms of the transaction, brands like Cook’s California Champagne, J. Roget American Champagne and Paul Masson Grande Amber Brandy are now excluded from the deal, resulting in the latest transaction price. On a combined-basis, these three brands generate sales of roughly five million cases annually.
Driven by the ongoing transformation strategy for its wine and spirits business, Constellation Brands is expected to pursue additional opportunities to sell the brands and Concentrate business, which are excluded from the original agreement. Management expects to divest the excluded brands by fiscal 2020.
In a separate deal, the Corona brewer entered into an agreement with E. & J. Gallo to divest its New Zealand-based Nobilo Wine brand and related assets worth $130 million. This transaction, which is likely to conclude in the first half of fiscal 2021, is subjective to the FTC’s and New Zealand’s regulatory approvals. Over the past 12 months (ending Aug 31, 2019), the Nobilo brand generated volume of roughly 550,000 cases, delivering net sales of $40 million and CAM (gross profit less marketing) of $19 million.
In second-quarter fiscal 2019, Constellation Brands agreed to divest Black Velvet Canadian Whisky to Heaven Hill in a deal worth $266 million. For fiscal 2020, net sales for the wine and spirits business are estimated to decline 15-20%, with operating income likely to fall nearly 25%.
Persistent softness in Constellation Brands’ wine and spirits business induced this Zacks Rank #4 (Sell) stock to decrease 11.5% compared with the industry’s 8.8% decline in the past three months.
Outcome
All the aforesaid actions clearly demonstrate Constellation Brands’ commitment to revive performance of its wine & spirits business. Sale of these low-end brands will help it concentrate on more lucrative premium wine & spirits brands, which should enhance returns and shareholder value. The company expects to use proceeds from the transaction to reduce debt.
Constellation Brands’ remaining wine and spirits portfolio include the Robert Mondavi brand family; The Prisoner Wine Company brand family; Kim Crawford; Ruffino; Meiomi; and SVEDKA Vodka. The portfolio also houses a range of high-end brands, namely, SIMI, Schrader Cellars, and Mount Veeder Winery wine brands; High West Whiskey and Casa Noble Tequila; and wine innovations like Cooper & Thief, 7 Moons and Crafters Union.
Barfresh Food Group, Inc. (BRFH - Free Report) has delivered a positive earnings surprise of 100% in the last reported quarter and a Zacks Rank #2 (Buy).
Luckin Coffee Inc. , also a Zacks Rank #2 stock, has registered a positive earnings surprise of 13.5% in the last reported quarter.
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Constellation Brands Revises Terms With Gallo, Cuts Deal Value
Constellation Brands, Inc. (STZ - Free Report) recently agreed to revise the terms of its original deal pertaining to divestiture of its certain wine and spirits business to E. & J. Gallo Winery. The Federal Trade Commission’s (FTC) competitive concerns related to the Sparkling Wine, Brandy, Dessert Wine, and Concentrate categories prompted the revision of the deal. The transaction, subjected to the FTC’s approval, is now likely to conclude by fiscal 2020 end.
Delving Deeper
In April this year, Constellation Brands had agreed to divest nearly 30 low-end brands from its wine & spirits portfolio, priced at or below $11 per bottle, to E. & J. Gallo Winery. The contract also included the divestiture of related facilities in California, New York and Washington. Notably, the deal, which is being superseded by the revised agreement, was valued at $1.7 billion. However, the revised adjusted deal value is worth about $1.1 billion, of which, $250 million is an earnout on the divested brand performance in a two-year period after closure of the deal.
Owing to the revised terms of the transaction, brands like Cook’s California Champagne, J. Roget American Champagne and Paul Masson Grande Amber Brandy are now excluded from the deal, resulting in the latest transaction price. On a combined-basis, these three brands generate sales of roughly five million cases annually.
Driven by the ongoing transformation strategy for its wine and spirits business, Constellation Brands is expected to pursue additional opportunities to sell the brands and Concentrate business, which are excluded from the original agreement. Management expects to divest the excluded brands by fiscal 2020.
In a separate deal, the Corona brewer entered into an agreement with E. & J. Gallo to divest its New Zealand-based Nobilo Wine brand and related assets worth $130 million. This transaction, which is likely to conclude in the first half of fiscal 2021, is subjective to the FTC’s and New Zealand’s regulatory approvals. Over the past 12 months (ending Aug 31, 2019), the Nobilo brand generated volume of roughly 550,000 cases, delivering net sales of $40 million and CAM (gross profit less marketing) of $19 million.
In second-quarter fiscal 2019, Constellation Brands agreed to divest Black Velvet Canadian Whisky to Heaven Hill in a deal worth $266 million. For fiscal 2020, net sales for the wine and spirits business are estimated to decline 15-20%, with operating income likely to fall nearly 25%.
Persistent softness in Constellation Brands’ wine and spirits business induced this Zacks Rank #4 (Sell) stock to decrease 11.5% compared with the industry’s 8.8% decline in the past three months.
Outcome
All the aforesaid actions clearly demonstrate Constellation Brands’ commitment to revive performance of its wine & spirits business. Sale of these low-end brands will help it concentrate on more lucrative premium wine & spirits brands, which should enhance returns and shareholder value. The company expects to use proceeds from the transaction to reduce debt.
Constellation Brands’ remaining wine and spirits portfolio include the Robert Mondavi brand family; The Prisoner Wine Company brand family; Kim Crawford; Ruffino; Meiomi; and SVEDKA Vodka. The portfolio also houses a range of high-end brands, namely, SIMI, Schrader Cellars, and Mount Veeder Winery wine brands; High West Whiskey and Casa Noble Tequila; and wine innovations like Cooper & Thief, 7 Moons and Crafters Union.
Key Beverage Stocks to Watch
The Boston Beer Company, Inc. (SAM - Free Report) has an expected long-term earnings growth rate of 10%. Currently, the stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Barfresh Food Group, Inc. (BRFH - Free Report) has delivered a positive earnings surprise of 100% in the last reported quarter and a Zacks Rank #2 (Buy).
Luckin Coffee Inc. , also a Zacks Rank #2 stock, has registered a positive earnings surprise of 13.5% in the last reported quarter.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +98%, +119% and +164% in as little as 1 month. The stocks in this report could perform even better.
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