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Constellation Brands brought back to earth by US suit to block ABInBev/Grupo Modelo deal

Source: Wall Street Journal

For months, Constellation Brands Inc. has been basking in the expectation that its revenue would soon double, thanks to a side transaction related to Anheuser-Busch InBev’s takeover of Mexican brewer Grupo Modelo.

But Constellation’s star fell Thursday as antitrust authorities said they would sue to block the beer merger. Constellation shares ended the day down 17.4%, at $32.36—a much steeper selloff than the ones sustained by AB InBev and Modelo, which were down 5.9% and 6.5%, respectively.

Constellation’s role was part of the strategy to assuage potential antitrust concerns raised by the proposed $20.1 billion Modelo acquisition. Constellation already owned half of Crown Imports LLC, a joint venture with Modelo that imports and markets the Mexican brewer’s beer brands in the U.S. Under the plan, the rest of Crown would be sold to Constellation for $1.85 billion, meaning that Constellation would control distribution, marketing and pricing for all Modelo brands in the U.S.

Buying all of Crown would mark a transformative moment for Constellation, which owns Robert Mondavi, Clos du Bois, Blackstone and other wines, along with spirits brands including Svedka vodka, and has annual sales of about $2.65 billion. Control of Crown could open the door for Constellation to add to its portfolio of beers through acquisitions or partnerships with other brewers. Under the deal, the Victor, N.Y., company would get a bigger piece of the action with Modelo Especial and Corona, beer brands that have outperformed the U.S. market.

Constellation’s shares ended 2012 with a 71% gain, as investors cheered the plan. On Tuesday of this week the shares had finished at a record high of $39.42.

Options activity in Constellation shares on Thursday indicated investors weren’t counting out the deal just yet. Options traders set up a number of big trades looking for Constellation shares to recover recent losses and even achieve new highs through the spring and summer.

Constellation had contended last month that the deal would close by the end of March, a timeline that is now off, and the acquisition anything but certain.

Constellation said is “disappointed” by the development but “we ultimately look forward to an expeditious resolution.”


Source: Wall Street Journal