--Constellation raises bid to take firmer control of Grupo
Modelo's U.S. business
--Higher purchase price includes acquisition of Mexican
brewery
--Transaction revised to appease regulators worried about a
related InBev deal
By John Kell
Constellation Brands Inc. (STZ) sweetened a bid to buy the U.S.
assets of Mexican brewer Grupo Modelo SA (GMPCY, GMODELO.MX) to
$4.75 billion, a revised transaction to appease regulators vexed by
a related Anheuser-Busch InBev NV (BUD, ABI.BT) transaction.
The wine and spirits maker's shares soared 27% to $40.34 in
premarket trading. The news added nearly $1.6 billion to
Constellation's market capitalization, as investors cheered a
revised transaction they hoped would win U.S. approval.
The Department of Justice last month filed an antitrust lawsuit
to block InBev's $20.1 billion bid to buy Grupo, which makes Modelo
and Corona beers, as the federal government contended customers
would see higher prices if the deal was approved.
The Justice Department hadn't been convinced Constellation's
side deal to buy Grupo's U.S. imports business would create a truly
separate entity. Constellation, poised to see annual sales double
if it won control of those assets, had contended the deal would
give the company firm control of pricing and distribution
decisions.
Constellation already had a 50% stake in a U.S. imports business
with Grupo, called Crown Imports, and the company last summer
agreed to take over the rest of that unit.
Many observers had expected InBev would revise the terms of its
deal with Constellation to win regulatory approval, allowing it to
take over Grupo in markets abroad.
Under the new terms of the proposed deal, Constellation agreed
to pay an additional $2.9 billion to by a Grupo brewery in Piedras
Negras, Mexico, and buy a license to make Grupo's beers on an
ongoing basis.
The price is based on the $310 million of assumed earnings
before interest, taxes, depreciation and amortization earned from
manufacturing and licensing the Modelo brands for sale by the Crown
Imports joint venture last year.
Constellation contends that the sale of the brewery, located on
the Texas border, "would ensure independence of supply for Crown
and provides Constellation with complete control of the production
of the Modelo brands for marketing and distribution in the
U.S."
Constellation and InBev also agreed to a three-year transition
period, and during that timeframe, the wine maker plans to spend
about $400 million to expand the facility to meet demand in the
U.S. Currently, the brewery fulfills about 60% of Crown Imports'
current demand.
The Justice Department wasn't immediately available to comment
on the new terms of the deal and how they would affect the
government's antitrust lawsuit.
"While the deal is still subject to DOJ approval, we expect this
will be achievable as the revised terms address many of the
concerns raised in the DOJ's antitrust lawsuit to block the deal,"
said Citi analyst Vivien Azer in a research note.
Constellation is hosting a conference call at 10:30 a.m. EST
Thursday to discuss the transaction.
-Write to John Kell at john.kell@dowjones.com
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