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Big deal brewing for firm

Rochester Business Journal
March 1, 2013

The chief executive at Constellation Brands Inc. is optimistic that a federal court will approve a multibillion-dollar deal to make the company the third-largest beer producer in the United States.
 
The deal could have a positive impact on the Victor firm's local operations, Robert Sands told the Rochester Business Journal this week. He believes a revised agreement developed with Anheuser-Busch InBev SA on that company's proposed $20.1 billion takeover of Mexican brewer Grupo Modelo SAB will move forward.
 
"This is a positive development for Constellation Brands and a great deal," said Sands, president and CEO. "It is quite transformative for the company and puts us in a strong position."
 
That position includes becoming a key player in the U.S. beer market, he said.
 
Because the parties are in talks that may lead to a settlement, AB InBev and the U.S. Department of Justice were granted a suspension until March 19 of the government's lawsuit seeking to block the brewer from buying Grupo Modelo.
 
The Justice Department filed suit last month to stop AB InBev from buying the half of Grupo Modelo it did not already own, saying the multibillion-dollar deal would lessen competition in the U.S. beer market.
 
Constellation Brands had planned to acquire the remaining half of its Crown Imports LLC joint venture in a $1.85 billion deal.
 
The revised deal-submitted Feb. 14-calls for AB InBev to sell Modelo's Piedras Negras brewery in Mexico, next to the U.S. border, to Constellation and grant it perpetual rights for Corona and other Modelo brands in the United States, at a cost of $2.9 billion.
 
Constellation still would acquire the 50 percent of its Crown Imports LLC joint venture that it did not own, for $1.85 billion. Crown is a 50-50 venture with Grupo Modelo. Under the agreement, Constellation Brands would have total control of distribution of popular Corona beers, among other products, in the United States.
 
AB InBev and Constellation have agreed to a three-year transition, during which Constellation plans to invest $400 million to expand Piedras Negras' capacity to enable it to supply 100 percent of U.S. needs, up from 60 percent today.
 
AB InBev would supply Constellation with beer, cans and information technology support during the transition. Constellation would have the option to extend the beer supply period for up to two more years.
 
Sands said he would discuss future strategy for the new business after the transaction closes. While he does not anticipate any major changes to the company's local operations, he said, he expects that some workers may be added here to help with the proposed brewery expansion.
 
Constellation Brands ranked 14th on the most recent Rochester Business Journal list of manufacturers with 620 local workers.
 
After the revised deal was announced last month, Constellation Brands stock (NYSE: STZ) soared nearly 40 percent to $44 a share, its highest level in two decades. On Monday, the stock hit $44.35, regaining all it had lost when the Justice Department announced its objection and more.
 
Morningstar Inc. analyst Thomas Mullarkey wrote in a research note that he believes the Justice Department will approve ABI's acquisition of Modelo since Constellation Brands will own the production and distribution of Corona.
 
"The increased likelihood that this deal will pass is a large positive for Constellation, as the company will have perpetual brand license to distribute Crown Imports' brands in the U.S.," Mullarkey wrote.
 
Distributors also were supportive of the deal.
 
Jeffrey Honickman is a veteran in the beverage distribution industry. He is CEO of Pepsi-Cola & National Brand Beverage Ltd., as well as a principal at beer distributors Antonio Origlio Inc. in Pennsylvania and Manhattan Beer Distributors Inc. in New York City.
 
Honickman cited many advantages of the deal for distributors, including the continued relationship they have with Crown Imports.
 
"It gives us certainty going into the future," he said. "We are very excited."
 
Honickman said he has visited the Mexican brewery Constellation Brands would acquire. It will allow for low-cost production at a modern facility.
 
Honickman too believes the revised deal will go through.
 
"They have taken down the hurdles I had seen and don't think there is much the government would be concerned about," he said.
 
Sands, who was heavily involved in the revised deal, said the discussions were standard in such transactions. The company worked with a number of law firms on the revised deal, as well as its in-house counsel.
 
Among them was Nixon Peabody LLP, which served as an adviser on the deal. The law firm had teams of employees focused on the areas of mergers and acquisitions, finance and real estate.
 
The M&A team was led by James Bourdeau, Jeffrey LaBarge and John Moragne, all in Rochester. LaBarge is the legal columnist for the Rochester Business Journal.
 
The Nixon Peabody finance team was led by Craig Mills in New York City and Boston, Sarah Abel in Boston and John LaBoda III in Rochester. Nixon Peabody real estate attorneys Paul Schrier and John Garibaldi, both in San Francisco, also advised Constellation in the transaction.
 
The firm declined to comment further on its role in the deal.
 
"We were fairly clear on what issues need to be addressed and worked to get those resolved," Sands said.
 
In an interview last year after the Crown Imports deal was announced, Sands said acquiring all of Crown Imports would allow Constellation Brands to pursue domestic and imported beer brands to enhance its portfolio of premium alcoholic beverages.
 
It also would split sales nearly evenly between Constellation Brands' beer segment and its wine and spirits business.
 
Crown's brands include Corona Extra, Corona Light, Modelo Especial, Pacifico, Negra Modelo and Victoria. Corona Extra is the best-selling imported beer and the No. 6 beer overall in the U.S. Corona Light is the leading imported light beer, and Modelo Especial is the third-largest and one of the fastest-growing major imported beer brands.
 
Constellation has been the importer, marketer and seller of the Modelo brands in the United States for almost two decades.

3/1/13 (c) 2013 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.


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