(Adds stock activity, background, analyst comment)
NEW YORK Jan 12 Constellation Brands (STZ.N)
said on Monday it agreed to sell its value spirits brands to
Sazerac Co for $334 million, sending shares of the alcoholic
drinks maker up 3 percent.
Constellation, the world's largest wine producer, said it
will use an expected $210 million in after-tax proceeds from
the sale to reduce its debt. It expects to close the deal by
the end of February.
Constellation will sell more than 40 brands, including its
99 Schnapps line, Barton and Chi-Chi's premixed cocktails to
Sazerac, which owns a range of spirits brands including Denaka
vodka and Ancient Age bourbon. The agreement does not include
Constellation's higher-end Svedka Vodka, Black Velvet Canadian
Whisky and Paul Masson Grande Amber Brandy drinks.
UBS analyst Kaumil Gajrawala said the value spirits made up
about two-thirds of Constellation's 2008 spirits sales by
volume, but only about 30 percent of the profit.
He valued the deal at about 15.5 times the unit's operating
earnings, which he said was favorable given the brands' low
margins and limited long-term growth potential, especially in
the current economic downturn.
The sale is the latest example of how Constellation is
taking steps to improve its long-term profit margins by
focusing on higher-end brands.
In June, it sold wines including Geyser Peak and Buena
Vista, and in January 2008, announced the sale of its Almaden
and Inglenook brands. It also acquired the wine business of
Fortune Brands Inc FO.N, which included premium names like
Clos du Bois.
Gajrawala called the latest sale "another step in the right
direction," since it indicates that Constellation "remains
focused on improving returns and paying down debt".
Constellation expects to report an after-tax loss of about
20 cents per share from the deal. The company lowered its
fiscal 2009 earnings forecast as a result, to a range of 45
cents to 49 cents per share from a previous view of 65 cents to
69 cents per share.
The company's shares were up 47 cents, or 3.2 percent, at
$15.36 on the New York Stock Exchange.
(Reporting by Michele Gershberg and Martinne Geller; Editing
by Derek Caney, Dave Zimmerman)