Constellation sells wine brands to E. & J. Gallo for $ 1.1 billion


UPDATE: December 12, 2019: Constellation Brands and E. & J. Gallo Winery revised their agreement to address Federal Trade Commission competition concerns. Constellation will retain selected brands in the sparkling wines, brandies, dessert wines and concentrates categories and pursue other opportunities to divest the brands now excluded from the deal. The deal price will be revised to $ 1.1 billion, of which $ 250 million is based on the performance of the divested brand over two years. The transaction is expected to be finalized by the end of fiscal 2020. Under a separate agreement, Constellation will sell its New Zealand subsidiary Nobilo Wine to E. & J. Gallo for $ 130 million.

UPDATE: April 4, 2019: Constellation brands sold about 30 brands from its wine and spirits portfolio to E. & J. Gallo Winery for $ 1.7 billion. The agreement is expected to close by the end of the first quarter of fiscal 2020.

Dive brief:

  • E. & J. Gallo Winery is said to be in talks with Constellation Brands to buy some of its low-end wine brands – including Clos du Bois, Mark West, Arbor Mist and Cooks – anonymous sources familiar with the sale told CNBC.
  • The third-largest beer company in the United States had hoped to get rid of its base wines for $ 3 billion. However, sources familiar with the details of the negotiations said the price is expected to be around $ 2 billion or less.
  • Sales of non-premium wines, including those owned by Constellation, are down 9% from a year ago, according to an industry report from Silicon Valley Bank. However, Constellation’s more premium wines – defined as those costing $ 11 or more a bottle – performed well, CNBC reported.

Dive overview:

Today’s alcohol space is fluid, as studies have shown that Millennials are not very brand loyal and seek out new drinks and innovations. This has caused traditional adult drinks to compete closely with craft spirits, cannabis-infused items and alcohol-free drinks. Constellation Brands has been one of the leading liquor companies to invest in emerging brands and new trends, as evidenced by its $ 4 billion stake in Canopy Growth.

Constellation has divested some drinks in an attempt to generate cash flow to invest in new experimental categories. Wine brands seem to continue to end up on the corporate chopping block, so Constellation’s long-term strategy may be to cut all of its wine brands altogether. Two years ago, wine represented 44.7% of Constellation’s net sales. But at the start of 2018, wine accounted for just 38.6% of Constellation’s $ 7.6 billion net sales. Part of this dramatic decrease can be explained by the sale of his Canadian wine business in 2016 to the Ontario Teachers’ Pension Plan for approximately $ 775 million.

It makes sense that Gallo is interested in Constellation’s low-end American wines. It’s a low to mid-range wine maker, and despite the struggles other companies have had with cheap wine, the business has grown over the past year. Although it is a private company, Forbes shows growth in turnover last year at 2.1% to $ 4.8 billion. Seizing a group of brands that would generate annual revenues of more than $ 260 million is a logical move for the California winemaker.

It is also not surprising. Gallo announced earlier this year that he would become the exclusive US importer for Italian Gruppo Montenegro, whose brands include Amaro Montenegro, Select Aperitivo and Vecchia Romagna Brandy, currently showing interest in acquisitions. And this agreement allows Constellation to focus on its beer brands.

“Overall, we remain optimistic about STZ beer’s overall positioning in the high end of the category and we are pleased to see confirmation of its wine sale, which in our opinion removes a significant surplus on the stock, ”wrote Bonnie Herzog, analyst for Wells Fargo Securities, in a note to analysts.

Considering that Constellation sold the brands for $ 1.7 billion, this could give the company a good cushion with which to invest in the development of other CBD and THC infused beers – drinks that have recently come into its own. rocked the market with growth and showing signs of overtaking more traditional. drinks like beer and wine.

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