Constellation Brands sells value spirits business to Sazerac Company for US$334 million – 15/01/09
Source: Constellation Brands; The Moodie Report
By Melody Ng
US. Constellation Brands Inc has entered into an agreement to sell its value spirits business to New Orleans-based Sazerac Company Inc for US$334 million, subject to closing adjustments.
The transaction is subject to routine and customary regulatory review, and is expected to close by the end of February 2009, the company said.
The entire net after-tax proceeds of approximately US$210 million will be used to reduce Constellation's borrowings. The sale price includes US$274 million in cash and US$60 million in medium-term financing by Constellation at market interest rates.
Constellation Brands President and Chief Executive Officer Rob Sands said: “This transaction is consistent with our strategic focus on premium, higher growth and higher-margin brands in our portfolio, and allows us to continue the process of reducing debt, generating free cash flow, creating efficiencies and increasing ROIC.
“With the proceeds from asset sales, along with our targeted free cash flow for fiscal 2009, we now expect our debt to comparable basis EBITDA ratio to approximate four times by the end of the current fiscal year, which underscores the effectiveness of our focus on cash flow generation,” he added.
Spirits brands the company is retaining include Svedka Vodka, Black Velvet Canadian Whisky and Paul Masson Grande Amber Brandy.
Svedka Vodka is said to be the fourth largest imported vodka brand in the US and one of the fastest growing major spirits brands in the world. Black Velvet Canadian Whisky and Paul Masson Grande Amber Brandy are mid-premium spirits that are each number two by volume in their respective categories, the company added.
“Totalling almost five million cases, the three principal spirits brands we are retaining have scale in the marketplace, good margins, are at mid-premium price points and continue to grow ahead of their respective categories,” said Sands.
“These are exactly the type of scale brands that fit well within Constellation's portfolio strategy, which is focused on well-known, trusted premium brands that represent good value to consumers.”
As a result of this transaction, Constellation is divesting more than 40 brands including Barton, Skol, Mr Boston, Fleischmann's, the 99 schnapps line, the diAmore line, Chi-Chi's pre-mixed cocktail line, Montezuma Tequila, in addition to numerous other brands representing over 600 skus.
The total volume for brands being sold was more than ten million cases for fiscal year 2008, with net sales for the divested brands totalling approximately US$200 million. Distillery and bottling facilities included in the sale are located at Bardstown and Owensboro, Kentucky, as well as a leased bottling facility at Carson, California. Constellation will retain its distillery and production facility at Lethbridge, Alberta, Canada.
“To achieve synergies and operating efficiencies we will consolidate the retained premium spirits business into our North American wine operations,” explained Sands. “A consolidation plan is expected to be finalised by the close of the transaction. This is a good example of how we are creating efficiencies in our business by leveraging our existing infrastructure to propel growth and enhance ROIC.”
The transaction is expected to result in a pre-tax reported loss of approximately US$11 million or an after-tax loss of approximately US$0.20 diluted earnings per share on a reported basis, and will be excluded from the company's comparable basis diluted earnings per share. The loss on the disposal is primarily driven by the write-off of non-deductible goodwill unrelated to the brands being sold as required by generally accepted accounting principles in the US. Due to the anticipated impact on reported results, and assuming the completion of this transaction, the company is adjusting its fiscal 2009 reported diluted EPS guidance to US$0.45-$0.49, from its previous reported diluted EPS guidance of US$0.65-$0.69.
The impact of this transaction is expected to be neutral to ongoing reported basis and comparable basis diluted earnings per share for fiscal 2009 and fiscal 2010. As a result, the company's fiscal 2009 comparable basis diluted EPS guidance remains US$1.68-$1.72. The gross proceeds from this transaction do not impact free cash flow as defined by the company. Free cash flow guidance for fiscal 2009 remains unchanged at US$360-$390 million.
“The brands being sold will be in good hands and complement Sazerac's existing portfolio,” said Sands. “Sazerac has a track record for growing brands they own, which makes this a mutually beneficial transaction.”
While many employees associated with the brands being sold will transfer to the new owner, some will be impacted by this change and the company is taking appropriate actions to support those who are displaced, it said.
Reported basis (“reported”) diluted earnings per share are as reported under generally accepted accounting principles. Diluted earnings per share on a comparable basis (“comparable”), exclude acquisition-related integration costs, restructuring charges and unusual items. The company discusses additional non-GAAP measures in this news release, including free cash flow.
Tables reconciling non-GAAP measures, together with definitions of these measures and the reasons management uses these measures, are included in this news release.
About Constellation Brands
Constellation Brands Inc is a leading international producer and marketer of beverage alcohol in the wine, spirits and imported beer categories, with significant market presence in the US, Canada, UK, Australia and New Zealand. Based in Fairport, New York, the company has more than 250 brands in its portfolio, sales in approximately 150 countries and operates more than 50 wineries, distilleries and distribution facilities.
It claims to be the largest wine producer in the world; the largest premium wine company in the US; the largest wine company in the UK, Australia and Canada; the second largest wine company in New Zealand; and the largest beer importer and marketer in the US through its Crown Imports joint venture with Mexico's Grupo Modelo.
Constellation Brands is an S&P 500 Index and Fortune 500 company. Major brands in the company's portfolio include Corona Extra, Black Velvet Canadian Whisky, Svedka Vodka, Robert Mondavi wines, Clos du Bois, Ravenswood, Blackstone, Hardys, Banrock Station, Nobilo, Kim Crawford, Inniskillin, Jackson-Triggs and Arbor Mist.
For more information, visit www.cbrands.com.