Constellation Brands Inc. said Thursday it is selling 80 percent of its Australian and British wine business to an Australian private equity firm for about $230 million, losing its distinction as the world's biggest wine company.
The seller of Robert Mondavi wine, Svedka vodka and Corona beer will retain a 20 percent stake, and the deal with Sydney-based Champ Private Equity is expected to be completed by the end of January. Based in Victor, N.Y., Constellation Brands bought Australian vintner BRL Hardy Ltd. for $1.1 billion in a 2003 deal that made it the world's largest wine business. It jumped further ahead of longtime wine leader E.& J. Gallo Winery of Modesto, Calif., when it bought Robert Mondavi Corp. for $1.3 billion.
Offloading its Australian-British unit will drop the company to No. 2 behind Gallo in both volume and sales of wine. But it will remain the biggest seller by volume of premium-category wines priced between $5 and $15 a bottle, spokeswoman Angie Blackwell said. Constellation Brands' shares rose 33 cents, or 1.5 percent, to close at $22.31 Thursday after touching a 52-week high of $22.43 earlier in the session. The stock has climbed 38 percent this year.
The sale includes virtually all of Constellation Brands' Australian, British and South African brands, wineries and vineyards, plus its 50 percent partnership in British wholesaler Matthew Clark. The transaction values the entire business at $290 million. The division being sold "has significant scale but continues to be faced with challenging market conditions" and no longer fits with Constellation Brands' strategy, CEO Robert Sands said in a statement.
UBS analyst Kaumil Gajrawala was upbeat about the deal. With the British and Australian business operating at breakeven to slightly profitable levels, the sale improves Constellation Brands' prospects for margin and revenue growth, he said in a note to clients. With the net proceeds expected to be funneled into paying down debt, Moody's Investors Service raised the company's ratings outlook to positive from stable, saying the sale of foreign assets would create a smaller but more profitable business with less risk.
In 2008, Constellation Brands began an overhaul of operations to counter a sales slowdown in Australia and Britain. Since then, it has been shaken by a wine glut in Australia and heightened private-label competition, falling prices and duty increases in Britain, where it's been a leading marketer of wine. Its main Australian wine brands are Hardys, Banrock Station, Leasingham and Chateau Reynella. Its non-U.S. wine portfolio also contains wines from core markets in New Zealand and Canada.
In its fiscal year ending in February, Constellation Brands posted $930 million in wine revenue in Australia, Europe and New Zealand -- the bulk of it coming from its Australian and British operations. Its overall annual sales fell to $3.65 billion from $3.77 billion in the previous year. In recent years, the company has shifted focus toward higher-priced wines and spirits, selling off some of its lower-price brands after a two-decade acquisition spree. It also has consolidated divisions, cutting its work force to 6,000 people from 8,200 in 2008.
Constellation Brands draws more than 90 percent of its revenue from wine, most of it moderately priced. Among its 100-plus brands are Clos du Bois, Woodbridge by Robert Mondavi, Blackstone and Ravenswood. It also sells liquors such as Black Velvet Canadian whiskey and, through a wholesale joint venture, imports beers including Negra Modelo from Mexico, Tsingtao from China and St. Pauli Girl from Germany.
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