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Constellation's (STZ) Brand Sale to Aid Wine & Spirits Business

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Constellation Brands Inc. (STZ - Free Report) successfully closed its previously agreed-upon deal to divest a portion of Constellation’s wine and spirits portfolio to E. & J. Gallo Winery. The transaction included Constellation’s brands priced at $11 retail and below, including certain related facilities located in California, New York, and Washington State.

As part of the deal, the company paid an aggregate of $810 million to Gallo, including about $560 million of cash payment on closing and the prospect to receive up to $250 million in earnout payments, depending on the fulfillment of brand performance targets within a two-year period after closing. Moreover, the transaction price includes adjustments of nearly $220 million related to changes in inventory for which Constellation already received the benefit.

Simultaneously, the company sealed its separate but related deal with Gallo to sell the New Zealand-based Nobilo Wine brand and related assets and liabilities for $130 million. Additionally, it completed the divestiture of certain brands, related inventory, interests in contracts and liabilities of its grape juice concentrate business to Vie-Del Company.

Meanwhile, the company received approval for the sale of the Paul Masson Grande Amber Brandy brand, related inventory and interests in certain contracts to Sazerac for $255 million. The transaction is likely to be completed in January 2021.

With the sale of the aforementioned assets and brands, the company expects accelerated revenue and operating margin performance at its wine and spirits business. Going forward, it expects to gain from the persistence of premiumization trends in the market. Notably, the divestitures position it well to gain from the premiumization trends through the crafting of a winning portfolio of distinguishing high-end brands.

Lately, Constellation’s wine & spirits premiumization strategy is playing out well, as evident from accelerated growth for the Power Brands and strong margin performance in second-quarter fiscal 2021. Notably, the company’s higher-end wine power brands outpaced the U.S. high-end wine category in IRI channels. This growth was led by gains in Kim Crawford, Meiomi and The Prisoner Brand Family, all of which reported double-digit growth in IRI channels.

Additionally, the company is making investments to fuel growth of its power brands through innovation, capitalizing on priority, consumer trends, with successful product introductions. Some of the recently introduced products are the Prisoner Cabernet Sauvignon and Chardonnay varietals, SVEDKA and High West ready-to-drink cocktails, Ruffino wine spritzer, and Meiomi Cabernet Sauvignon.

 


 

Shares of the leading alcohol company have gained 19.4% in the past three months compared with the industry’s growth of 15.4%. The company currently carries a Zacks Rank #3 (Hold).

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