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STZ Expands in the U.S. Beer Market

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Constellation Brands Inc’s (STZ - Free Report) efforts to expand its presence in the U.S. beer market paid off on Friday with the completion of the acquisition of Grupo Modelo, S.A.B. de C.V.’s U.S. beer business from Anheuser-Busch InBev (BUD - Free Report) for approximately $4.75 billion.

As part of the deal, Constellation Brands acquired Grupo Modelo's Piedras Negras brewery in Nava, Mexico; Grupo Modelo's 50% stake in Crown Imports LLC; perpetual rights to market and sell Corona and other Grupo Modelo's brands currently distributed by Crown in the U.S.; and the autonomy to develop new products and line extensions within the portfolio of brands for the U.S. market.

Following the completion of the transaction, Constellation Brands is now an independent brewer and marketer of beer in the U.S. The company will operate as one company with two divisions: a beer division and a wine and spirits division. The company can now sell all brands in Crown’s portfolio including Corona Extra, Corona Light, Modelo Especial, Negra Modelo, Pacifico and Victoria from Mexico and Tsingtao from China.

Additionally, Constellation has signed a 3-year agreement with AB InBev to carry out the smooth transition of the operations of the Piedras Negras brewery. In this transition period, Constellation is committed to spending $500–$600 million towards the expansion of this facility in order to double its current capacity to meet the projected demand for products in the U.S.

Further, the sale of Grupo Modelo’s U.S. beer business to Constellation Brands forms a part of AB InBev’s recently completed deal to buy Grupo Modelo. Completed on Jun 4, 2013, the deal between AB InBev and Grupo Modelo was initiatlly rejected by the Department of Justice on anti-competitive concerns about AB InBev's larger purchase of Mexican brewer Grupo Modelo. But later, the deal received approval from the department after AB InBev agreed to sell Modelo's U.S. business to Constellation Brands.

Constellation Brands is the largest wine company in the world and commands a dominant position in the premium wine segment in the U.S. The company is also a leading producer of wine in Canada and New Zealand. This provides a competitive edge to the company and bolsters its well-established position in the market.

Moreover, continued focus on brand building and promotion along with strategic acquisitions will accelerate its growth opportunities while strengthening its market position.

Constellation Brands currently has a Zacks Rank #2 (Buy). Other stocks worth considering in the beverages-alcohol industry are Anheuser-Busch InBev, Grupo Modelo, S.A.B. de C.V. and Beam Inc. . All these stocks hold a Zacks Rank #2 (Buy).

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