Will the sale of the giant Piedras Negras brewery by ABI to Constellation assuage the Department of Justice and induce them to drop their lawsuit to block the sale of Grupo Modelo to ABI? That is the question, my friends.
The Justice Department so far is noncommittal. "We would give any proposal serious consideration and at the same time we would continue to prepare for litigation," said Gina Talamona, a department spokeswoman to the WSJ.
Indeed, the Capitol Forum newsletter is skeptical that even this huge concession is enough to get the DOJ to drop their lawsuit to block the deal. They would have to eat crow, which is something government agencies don't like to to. Plus, having Constellation own production "could be irreconcilable with the DOJ's stated views on Constellation's lack of competitive incentives. Accordingly, it would create a challenge for the DOJ in publishing its competitive impact statement--a public document describing how the arrangement cures the competitive problems identified in the complaint."
Regardless of that, Constellation chief Rob Sands told BBD that he is confident this will grease the rails to get the deal done, as they tailored this new deal to "address the specific issues brought up by the Justice Department's lawsuit."
This deal allows for Constellation (the largest premium wine company in the world) to buy the modern Piedras Negras brewery, a 10 million hectoliter brewer that is expandable to 30 million hectos, which would make it the largest brewery in the world.
Can Constellation run such a large operation? Rob pointed out that they operate 40 wineries worldwide, and Crown chief Bill Hackett reminded BBD that "that's why we have the three year transition" and "the people come with the brewery. We have smart people that do this for a living. We've worked with them on a regular basis." Rob added: "We intend to retain all of the employees down there, and they've been a very strong team."
Constellation will take on a tremendous debt to buy the brewery, but Rob pointed out to BBD that they have taken on this level of debt before and they are "very comfortable with it." He said that the "beverage alcohol business in general is very cash flow generative and a very stable business...... we'll pay down our debt in a few years."
Bill added that distributors have been emailing and texting him all day in support of the deal. "Our network is really excited about the stability and ability to count on Crown and count on this business," he said.
Wall Street loves the deal, with STZ stock rising over 30% in one day. But the deal is contingent upon the DOJ. So we wait to hear what they say. The supply agreement was an issue with them, and that goes away with this deal. On the other hand, Constellation's behavior in pricing was another issue, and that remains. Let us wait and see.
Until tomorrow, Harry
"Life is far too important a thing ever to talk seriously about."
-Oscar Wilde (1854 - 1900)
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