UPDATE 2-Constellation sells value spirits for $334 mln

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NEW YORK, Jan 12 (Reuters) - 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".