Brand to Brand

Fortune selling wine business to Constellation

Published in CSP Daily News

DEERFIELD, Ill. -- Fortune Brands Inc. and Constellation Brands Inc. have announced a definitive agreement for the sale of Fortune Brands' U.S. wine business to Constellation Brands. The purchase price is $885 million.

The sale includes brands such as Clos du Bois, Geyser Peak, Wild Horse, Buena Vista Carneros and Gary Farrell, as well as the associated vineyards, winemaking assets and sales organization.

Fortune Brands estimated that it will realize net proceeds of approximately $840 million after taxes, and estimated that it [image-nocss] will also realize an aftertax gain of $50 million to $60 million on the sale.

"Positioning our businesses for higher returns is a key part of Fortune Brands' strategy to maximize shareholder value," said Norm Wesley, chairman and CEO of Fortune Brands. "Because the wine industry is lower margin and more capital intensive than spirits, it's naturally a lower return segment relative to our spirits business. This sale increases our financial flexibility and will enable us to more sharply focus resources on the higher return premium spirits segment of our business."

He added, "While our Beam Wine Estates unit is one of the most attractive businesses in the U.S. wine industry, a long-term strategic review concluded that focusing resources on the higher return premium spirits segment rather than wine is the right capital allocation strategy for Fortune Brands going forward. Given the combination of the future capital requirements for our wine business, its lower returns relative to spirits, and significant interest from potential buyers, we believe this is the right move for long-term shareholder value."

Because Fortune Brands' spirits and wine brands each have separate sales organizations, the company does not expect the sale to be disruptive to its spirits portfolio. Fortune Brands will retain the Harveys sherry and Cockburn's port brands.

The wine brands included in the transaction had sales in 2006 of 2.6 million 9-liter cases and revenues of $214 million including excise taxes. The majority of the volume is driven by Clos du Bois, the No. 2 super-premium U.S. wine brand. Fortune Brands' wine unit, Beam Wine Estates, is based in Sonoma County in California.

The sale is subject to customary closing conditions and is expected to close in the current quarter. Fortune Brands expects the sale to be slightly dilutive to 2008 earnings.

"This portfolio is an excellent fit and furthers our strategy of exceeding consumer expectations and expanding our presence in the growing high-end segments of the wine market," said Rob Sands, Constellation Brands president and CEO. "We are delighted about the prospect of adding these wineries and brands to our existing portfolio, which will enhance our growing position in the U.S. premium wine business."

The company estimates that on a comparable basis, this acquisition will be slightly accretive to diluted earnings per share for fiscal 2009 and modestly dilutive for fiscal 2008, assuming the transaction closes by Dec. 31, 2007. A plan for the integration of this acquisition into Constellation will be finalized after the close of the transaction, and the company will determine the best way to effectively assimilate the brands and facilities. The transaction will be financed with debt and is subject to customary and routine regulatory approvals and other closing conditions.

Deerfield, Ill.-based Fortune Brands is a consumer brands company with annual sales exceeding $8 billion. Its operating companies have brands and market positions in spirits and wine, home and hardware products and golf equipment. Beam Global Spirits & Wine Inc. is the company's spirits and wine business. Major spirits brands include Jim Beam and Maker's Mark bourbons, Sauza tequila, Canadian Club whisky, Courvoisier cognac, DeKuyper cordials, Starbucks liqueurs and Laphroaig single malt Scotch.

Constellation Brands is a producer and marketer of alcohol in the wine, spirits and imported beer categories. Based in Fairport, N.Y., the company has more than 250 brands in its portfolio, sales in approximately 150 countries and operates approximately 60 wineries, distilleries and distribution facilities. It is the largest wine producer in the world; the largest U.S. wine company based upon sales dollar value, the largest wine company in the U.K., Australia and Canada; the second largest wine company in New Zealand; the largest U.S. beer importer and marketer in the through its Crown Imports joint venture with Mexico's Grupo Modelo; and the third largest U.S. spirits company. Major brands include Corona Extra, Black Velvet Canadian Whisky, the SVEDKA vodka line, Robert Mondavi wines, Ravenswood, Blackstone, Hardys, Banrock Station, Nobilo, Kim Crawford, Inniskillin, Jackson-Triggs and Arbor Mist.