--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
(Updates with details from Constellation's conference call and
the latest stock quote, beginning in the second paragraph.)
By John Kell
Constellation Brands Inc. (STZ) sweetened a bid to buy the U.S.
assets of Mexican brewer Grupo Modelo (GPMCY, 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 37% to $43.65 in
recent trading, the top gainer in the Standard & Poor's 500.
The news added over $2.1 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 Modelo, 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 Modelo'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 Modelo, called Crown Imports, and the company last summer
agreed to take over the rest of that unit.
Constellation Chief Executive Rob Sands, in a conference call
with analysts, said the deal would make his company the largest
multi-category supplier for beer, wine and spirits in the U.S.
Mr. Sands said the new deal included a non-terminable license to
import and distribute Modelo's beers to the U.S., with the
exclusive right to develop line extensions and launch new beers in
the U.S.
Many observers had expected InBev would revise the terms of its
deal with Constellation to win regulatory approval, allowing it to
take over Modelo in markets abroad.
Under the new terms of the proposed deal, Constellation agreed
to pay an additional $2.9 billion to by a Modelo brewery in Piedras
Negras, Mexico, and buy a license to make Modelo's beers on an
ongoing basis.
Current capacity for the brewery, which completed construction
in 2010, is about 10 million hectoliters, or about 120 million
cases.
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.
To finance the deal, Constellation has bridge financing in
place, and permanent financing for the deal is expected to consist
of a mix of additional senior notes and term loans, as well as
available cash and an existing revolving credit facility.
"We will be putting the permanent financing in place prior to
closing," Chief Financial Officer Robert Ryder said. He said timing
will depend on market conditions, and as a result, Constellation
could see some higher interest expenses and banking fees before the
deal closes.
The Justice Department wasn't able to comment on the new terms
of the deal and how they would affect the government's antitrust
lawsuit.
Investors seem convinced the new deal would win regulatory
approval, and analysts say the revised terms addressed many of the
Justice Department's concerns.
"There is no reason for the Justice Department to oppose this
[deal], it creates a new player in the beer business that is
completely independent from InBev," D.A. Davidson analyst Tim Ramey
said.
Mr. Ramey said investors were cheering the "all in" aspect of
Constellation's revised offer. Modelo's beers are outperforming
competitors in the U.S., and Mr. Ramey said Constellation is
ultimately getting the assets at an affordable price, as they are
helping enable InBev's larger purchase.
-Write to John Kell at john.kell@dowjones.com
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