Crowning Moment

Constellation Brands purchases remaining 50% share in Crown Imports

Published in CSP Daily News

By
Jennifer Bulat, Director of Editorial Production

VICTOR, N.Y. -- In a transaction related to Anheuser-Busch InBev's purchase of Grupo Modelo for $20.1 billion (see Related Content below for additional CSP Daily News coverage), Grupo Modelo's existing 50% stake in Crown Imports LLC, the joint venture that imports and markets Grupo Modelo's brands in the United States, will be sold back to Constellation Brands Inc. for $1.85 billion. This gives Constellation Brands 100% ownership and control.

As a result, Crown Imports will continue to import, market and distribute Grupo Modelo's brands independently in the United States on economic terms similar to what it receives today. Crown Imports will continue to manage all aspects of the business, including making marketing, distribution and pricing decisions.

Under the terms of the transaction, Constellation Brands and Crown will have complete, independent control of distribution, marketing and pricing for all Modelo brands in the United States, while AB InBev will ensure continuity of supply, quality of products and the ability to introduce innovations. The new agreement will be perpetual and provides AB InBev with the right, but not the obligation, to exercise a call option every 10 years, subject to regulatory approval, at a multiple of 13 times Crown's EBIT from the Modelo brands.

The deal is expected to close in the first quarter of 2013, Constellation said.

The Crown Imports business was expected to play a role in the deal between AB InBev and 87-year-old, family-owned Grupo Modelo, Mexico's largest brewer.

The two companies were ready to shake hands and merge in 2008, right before AB was purchased by InBev. Sources offer various reasons for why it didn't happen--ranging from miscommunication about the InBev offer for AB to disagreements about the new company's leadership--but many in the industry say it was inevitable, regardless of how long it has taken to get here.

"The deal made a lot of sense in July 2008; it was a good deal for both parties then," said Joe Vonder Haar, managing partner of iSEE Store Innovations LLC and former vice president of sales for the convenience channel for A-B. "It was only a matter of time before it came back again."

Grupo Modelo's stable of brands includes import Corona Extra, No. 3 import Modelo Especial and Corona Light.

Whether federal regulators will let the deal go through is a big question. The purchase gives AB InBev an even stronger market share in the United States, especially considering the strength of brands such as Corona.

According to Bump Williams, president of Bump Williams Consulting Co., Stratford, Conn., for the merger to pass the Federal Trade Commission (FTC), AB InBev may have to divest itself of some subpremium brands, such as Natural Light or Busch. But it could be other brands as well.

Still, others in the beverage industry say that's a long shot. Aside from the fact that Natural Light and Busch are the top two domestic subpremium beer brands, Busch "is part of the company's heritage," said a source close to the company. "The volume from those two brands keeps the brewery moving."

The strength of Modelo's brands in c-stores is evident in CSP's 2012 Category Management Handbook: According to SymphonyIRI Group data, Corona Extra is the clear leader in c-store sales of imported beer, with $548.6 million in sales for the 52 weeks ending Dec. 25, 2011. Two slots down at No. 3 is Modelo Especial, with $224.6 million in sales. Corona Light is No. 8 with $40 million (see Related Content below).

Victor, N.Y.-based Constellation Brands manages a broad portfolio of more than 100 wines, beers and spirits that include Robert Mondavi, Clos du Bois, Kim Crawford, Inniskillin, Franciscan Estate, Ruffino, Simi, Estancia, Corona Extra, Black Velvet Canadian Whisky and SVEDKA Vodka.

By Jennifer Bulat, Director of Editorial Production
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