Market Overview

Constellation Brands Has Record Day After Corona Deal

Shares of Constellation Brands (NYSE: STZ), soared the most in 27 years on Thursday after the company struck a deal to acquire the perpetual rights to import and distribute the Corona and Modelo beer brands in the United States. In afternoon trade, Constellation shares were up around 37 percent to $43.62. Previously, Constellation shared the U.S. distribution rights to Modelo brands through 2017 with Mexican brewing giant Grupo Modelo through a joint venture called Crown Imports.

The move came as Anheuser-Busch InBev (NYSE: BUD) and Grupo Modelo attempt to appease U.S. regulators who have sued to block their $20.1 billion acquisition deal. Under terms of the deal, Constellation Brands will also receive Modelo's Piedras Negras brewery located near the Texas border. The transaction is valued at $2.9 billion, a figure which D.A. Davidson's Tim Ramey described as "breathtaking" and favorable for Constellation.

Regulators were concerned that AB InBev's acquisition of Grupo Modelo and its stake in Crown Imports, would give the company too much control over the domestic beer market and could lead to higher prices. AB InBev's Budweiser, Bud Light, Michelob, and Busch brands, among others, account for almost half of the U.S. beer market while Grupo Modelo's Corona is the largest imported brand in the U.S.

Investors are clearly thrilled with the price of the deal and the strategic direction of Constellation in the wake of the transaction. The stock had fallen 17 percent on January 31 when the antitrust lawsuit to block the Grupo Modelo acquisition was filed. The implied purchase multiple for Constellation's acquisition of perpetual import rights and the Piedras Negras brewery is around 9 times.

“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.”

Sands said that the Piedras Negras brewery is the crown jewel of Modelo's brewing operation. The plant will be expanded over the next three years to supply all U.S. demand for Modelo brands. According to the antitrust lawsuit, Modelo's brands generate around $2.4 billion in annual revenue in the U.S.

Bloomberg notes that if these sales were given the same multiple as competitor Boston Beer Co. (NYSE: SAM), which trades at 3 times sales, they would be worth around $7.2 billion. The price action in the stock confirms that the market thinks Constellation got a great deal in the wake of the government's efforts to block AB InBev's acquisition of Grupo Modelo.

The stock is now sitting at new all-time highs and Thursday's news will change the face of Constellation Brands going forward. The company now has a stream-lined, straightforward, and lucrative business that it fully controls and will be the third-largest domestic brewer and seller of beer behind InBev and MillerCoors LLC.

Shares of AB InBev are also reacting favorably to the news as investors hope that the Grupo Modelo acquisition can now be salvaged. At last check, BUD was trading up more than 5 percent on the session to just below $93.

Posted-In: News Legal M&A Intraday Update Movers Best of Benzinga

 

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