STZ Sells Two Wine Businesses - Analyst Blog

Constellation Brands Inc. ( ">STZ ),  the world's leading wine company, has inked a deal with a private equity company in Sydney named as Champ to sell 80% of its Australian and U.K business (Constellation Wines Australia and Europe or CWAE) for A$290 million. The company hinted that it would retain a 20% interest in the business and will accept cash proceeds of $230 million, subject to closing adjustment. Constellation mentioned that the cash proceeds received from the transaction will be used to repay debt.

Since the last two years, Constellation has been continuously working on its strategy to drive the growth of its organic business by improvising its portfolio of brands and improving margins.  However, CWAE which has undergone various woes during the economic downturn and is still facing numerous challenges no longer fits into Constellation's growth strategy.

The transaction which is expected to complete by the end of January 2011 comprises all of Constellation's Australian, U.K., and South African brands, wineries, facilities and vineyards. It also includes the company's 50% interest in Matthew Clark, the U.K. wholesale joint venture. This would also result in transfer of all the employees of CWAE with the business. The company mentioned that the two companies will work together to globally distribute each other's products.

Industry cutbacks in the midst of sluggish sales and ailing demand have prompted many companies to make such a move. Most recently, the company's nearest competitor Brown-Forman Corporation (BF.B) has been in the news about selling its wine business. About three years back, Fortune Brands Inc. (FO) got rid of its U.S. wine business to Constellation for about $885 million. 

Constellation shares maintain a Zacks #2 Rank, which translates into a short-term ‘Buy' rating. Our long-term recommendation on the stock remains ‘Neutral'.

 
BROWN FORMAN B (BF.B): Free Stock Analysis Report
 
FORTUNE BRANDS (FO): Free Stock Analysis Report
 
CONSTELLATN BRD (STZ): Free Stock Analysis Report
 
Zacks Investment Research