Constellation Brands Gains Most 27 Years on Corona Deal

Constellation Brands Inc. soared the most in more than two decades after winning full control of the Corona beer brand in the U.S. as Anheuser-Busch InBev NV sought to salvage its bid to buy the rest of Grupo Modelo SAB.

The shares advanced 37 percent to $43.75 at the close in New York. The jump for the Victor, New York-based company was the biggest since July 1986 and the largest gain in the Standard & Poor’s 500 Index today.

Constellation will gain Modelo’s brewery in Piedras Negras, which is located in Mexico near the Texas border, and perpetual rights for the Corona and Modelo brands in the U.S. for about $2.9 billion, AB InBev said today in a statement. AB InBev agreed to the sale to appease U.S. regulators who said its Modelo deal would give it too much control over the nations’ beer market.

The deal price is “breathtaking” and “more favorable than we previously envisioned,” Tim Ramey, an analyst with D.A. Davidson & Co, in Lake Oswego, Oregon, said today in a note.

Constellation, which previously shared the rights to distribute Modelo brands in the U.S. through 2017, declined 17 percent on Jan. 31 after U.S. regulators sued to block the $20.1 billion deal between AB InBev and Modelo.

AB InBev controls almost half the U.S. beer market, while Corona is the country’s biggest imported brand.


Constellation brands will become the third-largest brewer and seller of beer to U.S. consumers after AB InBev and MillerCoors LLC, a joint venture between London-based SABMiller Plc and Denver-based Molson Coors Brewing Co.

“This transaction represents a significant milestone in the history of Constellation and the next transformational step in the evolution of our business, as it will solidify our place in the U.S. beer market for the long term,” Chief Executive Officer Rob Sands said during a conference call. “It will also make Constellation the largest multi-category supplier for beer, wine, and spirits.”

Constellation is open to expanding its beer operations through acquisitions including craft beers, Sands said today in an interview. In the meantime, the company will look to extend Modelo’s brands into new offerings to help grow sales.

The Piedras Negras brewery is the crown jewel of Modelo’s manufacturing network, Sands said. The plant currently can brew 10 million hectoliters of beer a year and be tripled in size. It produces about 60 percent of the existing supply needs for Modelo brands in the U.S., Sands said. The plant will be expanded over three years at a cost of about $400 million to supply all of the U.S. demand.

Purchase Valuation

The $2.9 billion purchase price for the production assets and rights is based on assumed 2012 earnings before interest, taxes, depreciation and amortization of $310 million, AB InBev said. That gives an implied purchase multiple of about 9 times, which Dirk Van Vlaanderen, an analyst at Jefferies Group Inc. in London, described as “fair.”

“It’s a very favorable transaction for Constellation shareholders for sure,” Sands said today in the interview. “Both parties were interested in making a fair deal that resolved the issues as quickly as possible.”

As previously agreed, Constellation will pay $1.85 billion for the full rights to distribute the Modelo brands. Constellation already owned half of those rights.

Modelo’s brands in the U.S. generate about $2.4 billion in annual revenue, according to the government’s lawsuit. As of early February, investors valued AB InBev at 3.5 times its annual trailing sales, while Sam Adams-maker Boston Beer Co. was valued at three times, according to data compiled by Bloomberg.

If Modelo’s U.S. sales commanded the same multiple as Boston Beer’s, they would be worth $7.2 billion, according to Kenneth Shea, a consumer-products analyst for Bloomberg Industries in Skillman, New Jersey.

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