2 Reasons Why Constellation Brands Likely Won't Be Buying Brown-Forman

Constellation Brands, Inc. STZ has difficulty walking the line, according to Credit Suisse. The company continues to stumble over decelerating growth in its Mexican beer line, ultimately insignificant acquisitions in the wine and spirit space, and general underperformance regarding its Ballast Point acquisition.

So the firm understands Constellation’s reported interest in the “well-run and steadily growing” Brown-Forman Corporation (NYSE: BF-A) (NYSE: BF-B), owner of the Jack Daniel’s brand. Still, it sees little hope in the opportunity.

Analysts Laurent Grandet and Clay Crumbliss expect inflexibility in both Constellation’s budget and Brown-Forman’s business strategy to limit merger potential.

What’s The Holdup

Predicting a $30 billion price tag inclusive of a premium, Credit Suisse said Constellation, with about $9 billion in debt, can't presently afford such a purchase.

Not only that, but the Brown family, which owns more than two-thirds of voting shares, are unlikely to approve a sale. The fifth-generation founders have historically rejected opportunities to relinquish control of the nearly 150-year-old company.

“We can’t see any reason why this would change, especially as we do not see obvious synergies between the two businesses,” Grandet and Crumbliss wrote in a Wednesday note.

However, Brown-Forman has not yet confirmed its stance on the alleged offer, on which Constellation declined to comment. Sources told CNBC the bid was forwarded to the board Tuesday.

What The Stars Say

Regardless of the target’s position, Constellation has seemingly betrayed its near-term growth strategy.

“STZ will have clearly indicated it is aggressively looking for other options to beef up its wine and spirits business,” Grandet and Crumbliss wrote, noting that an acquisition failure could trigger a massive shift in direction. “Should Constellation not be successful, we could envision a scenario where it would disengage from that side of its business.”

The company's portfolio currently includes Corona and Svedka Vodka.

At time of publication, Constellation was trading down 1.8 percent at $177.72.

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