Sands, Brito, Fernandez Speak on Deal

FILED JUNE 29, 2012

Dear Client:

BBD has been busy this morning listening to conference calls and reading over the details of the ABI - Modelo deal and the sale of Modelo's 50% stake in Crown Imports to Constellation Brands. We have consolidated the more interesting quotes from those calls below.

Several readers have inquired as to how Crown Imports will maintain pricing autonomy when ABI will control Crown's cost of goods sold (COGS) on Modelo brands. This is a good question, because Crown has eaten into A-B's sales and the narrowing price gap between Corona and domestic premiums is likely a factor. The question is at least partially answered by Constellation chief Rob Sands in a conference call this morning, who said that their contract with ABI (if the deal clears) is specific about COGS increases, to wit:

ROB SANDS ON CROWN COGS AND CONTRACT WITH ABI. "Basically, the new contract was generally designed to preserve the economics of the old contract. So in terms of how Crown will operate or the economics, there's really no significant or material changes to that. There are specific contractual provisions in the new contract with regards to Crown. Those regard to COGS increases. But again, the contract was designed to preserve the economics of our current agreement."

SANDS ON ANY CHANGES AT CROWN. "We don't really see that a lot of change is necessary. Obviously, the business is performing very well at the current time. Specifically, we have no intention of changing management. The current management team under Bill Hackett has done a great job and we certainly intend to leave that in place. And we see no change in distribution and the distribution network which has also performed very well for us. So obviously, we don't have the issue hanging over, so the 2016 date - so we'll be thinking about the beer business very much as we think about the wine and spirits business in terms of what investments make sense to drive the business for the future and achieve our strategic imperative of driving profitable organic growth."

SANDS ON PAST MODELO DISAGREEMENTS. "I think some of the disagreements between Modelo and Constellation were probably kind of natural given how the contract was set up and how both parties were looking at duration. I think part of the reason that you saw a different buyout multiple for us, meaning, buying at an 8.5 times EBIT and a different exit multiple 13 times is because ABI wants us to think like a long-term brand owner of the Corona brand in the U.S. And a 13 times exit multiple is kind of like a perpetuity multiple, right? So they really want us to have that kind of mindset. So I think going forward we'll have a very similar mindset. We'll be thinking very long term."

SANDS ON ACQUIRING OTHER BEER BRANDS FOR CROWN. "There's no limitation on our ability to add brands whether imported or domestic, with the exception of Mexican brands. Okay, Modelo will continue to be our exclusive supplier of Mexican brands, but other than that there's no limitation on what we can add in the Crown business or as part of the Crown portfolio......And basically they can't do knockoffs and we can't do knockoffs." ED. NOTE: I wonder what this means for LandShark Lager?

SANDS ON ABI-MODELO PROVIDING INNOVATION. "They're [ABI] very interested and have provided for innovation because this is an important part of the business for them. So in our agreements so to speak, we've provided for a strong innovation pipeline as it relates to new products and new packages from Mexico."

SANDS ON PRICING. "We're generally not going to comment on pricing. Suffice to say that the Crown management team is going to do what makes commercial sense for the business. That's pretty much as much as we can say or are going to say at this point in time."

CARLOS BRITO ON REGULATORY APPROVAL: "It's common with transaction of this size, notifications are required in several jurisdictions as we expect filings to be made in the U.S., Mexico and some other jurisdictions. And we'll work with regulators to move through the review process efficiently. We believe this transaction should be approved. We believe this transaction brings no change to the U.S. market . Crown will be owned 100% after the sale of the 50% owned by Modelo to Crown. Constellation will own 100% of Crown in the U.S. and Crown will remain the sole importer of Grupo Modelo brands into the U.S. market. So - and therefore we have no decisions on marketing, distribution, pricing of the brands in the U.S. market..... You have to remember that AB InBev already has an economic interest in Grupo Modelo of more than 50% as of today. And this is a continuation of a relationship that's more than 20 years old."

BRITO ON BRAND DIVESTITURES: "We don't anticipate any divestitures [in the US] other than the transaction that we already explained of Modelo is selling 50% stake in Crown to Constellation at the time of closing."

BRITO ON MODELO MANAGEMENT. "It's going to be business as usual, until of course the transaction closes. And we are going to structure the management of Grupo Modelo going forward after closing. We are going to communicate that in due course."

CARLOS FERNANDEZ ON DEAL: "We have grown Bud Light into the number one imported beer in our country in Mexico. I started at the company as you may know at a young age and back then, and even when I became CEO decades later, I never imagined that the company will grow to the size it is today."

BRITO ON SYNERGIES: "We will create synergies from combined purchasing opportunities in sharing our best practices of at least $600 million per annum phased over four years."

NOTE: ABI's stock is up 4% today while Constellation's stock is up 25% on the news.

Until Monday, Harry

"This is a fantastic result. We will become a part of the most significant beer business in the world."
-Grupo Modelo chief Carlos Fernandez on ABI deal

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