Constellation Brands (STZ) Deal 'Breathtaking'

February 14, 2013 11:41 AM EST
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Price: $149.59 -0.59%

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On January 31st the U.S. filed a complaint to block Anheuser-Busch InBev SA/NV (NYSE: BUD) from acquiring the balance of Grupo Modelo it doesn't already own, sending Inbev shares down over 6 percent. Constellation Brands (NYSE: STZ), which distributes Corona, closed down 17 percent in reaction to the news. Today Anheuser-Busch revamped its deal in an effort to salvage the acquisition, divesting its interest in Grupo Modelo's U.S. businesses as it attempts to appease regulators.

The transaction establishes Crown as a fully owned entity of Constellation, and provides Constellation with independent brewing operations, Modelo's full profit stream from all U.S. sales, and rights in perpetuity to the Grupo Modelo brands distributed by Crown in the U.S.

It appears Constellation Brand investors were pleased with the agreement, to say the least, and shares moved higher by 38 percent in response.

Analyst Timothy S. Ramey of D.A. Davidson called the deal, "breathtaking".

"The Constellation Brands deal announced this morning was much more favorable than the terms we discussed in our February 13th note. The deal to acquire all of the Piedras Negras facility and a royalty-free license to the Modelo brands for the U.S. at 9x training EBITDA is breathtaking, in our opinion."

Assuming the incremental financing cost is in the 6 percent range, Ramey thinks the deal will add $0.55 to Constellation Brands EPS.

The combined purchase price for the remaining 50 percnet interest in Crown and the Piedras Negras brewery and the perpetual brand licenses is approximately $4.75 billion.

DA Davidson reiterated a Buy rating on Constellation Brands and raised its price target to $55.00 (from $50.00).

For an analyst ratings summary and ratings history on Constellation Brands (NYSE: STZ) click here. For more ratings news on Constellation Brands click here.

Shares of Constellation Brands closed at $31.88 yesterday.

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