Constellation wins over Vincor at last

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The wine deal that everyone thought was dead late last year came to a slightly different conclusion earlier this week, when Constellation Brands finally got its hands on Vincor International.

On Monday (3 April), Constellation announced that its C$36.50 per share offer - valuing the world's eighth-largest wine producer at US$1.3bn - had been unanimously accepted by Vincor's board.

The agreement brought to an end a game of cat-and-mouse that at times had turned ugly. Vincor president and CEO Don Triggs repeatedly spurned Constellation's advances, labelling their bids "opportunistic and inadequate", and moved to invite rival bids. Triggs' stance rattled a "baffled" Constellation chief Richard Sands, who went out of his way to play down the idea that Vincor was a "must-have acquisition" and that the Canadian company had "must-have" brands in a similar vein to Mondavi and Hardy.

Sands then insisted that Vincor did not have sufficient margins or scale to justify the same high multiples that Constellation had paid for Robert Mondavi or Foster's had paid for Southcorp, or to justify Triggs' demands for a higher price.

As it turns out, Constellation wasn't far off nailing the deal in December when it made a conditional offer of C$35 per share. Speaking to just-drinks at the time, a spokesperson for Vincor said: "We were open to talk to them, so long as they gave a firm and fair offer north of C$35 (per share), and Constellation said no." When asked how far north, the spokesperson said: "Not a million miles away (from C$35)."

Having been spurned four times since September and been told that it was almost there, it always seemed likely that Constellation might make that final, small push and win their prize.

So, why has Constellation, the biggest wine maker on the planet, kept chasing Vincor? Firstly, Vincor is an attractive company, which owns wineries in Canada, the US (in California and Washington), Western Australia and New Zealand. It is also one of the largest wine importers, marketers and distributors in the UK.

Secondly, buying up wine companies appears to have been Constellation's strategy for growth over the last few years. As Stifel Nicolaus industry analyst Mark Swartzberg observed: "Since late-1998, the company has completed acquisitions totalling approximately US$4bn and overwhelmingly financed by debt."

Swartzberg noted that Constellation's buying strategy has been one of paying for growth and synergies without overpaying, and that this transaction is consistent with that strategy.

"We believe the challenges facing Vincor's recently underperforming Western Wines business (its UK wine subsidiary) contribute to Constellation's ability to propose a transaction on an amount substantially below-peak or even steady-state earnings for Vincor."

However, concerns that the company is growing too rapidly and that acquisitive growth may be masking less than impressive organic progress appear unfounded. As Swartzberg argues, Constellation has spent US$4bn on acquisitions since 1998, but in that time market capitalisation has soared from around US$900m to US$6.1bn. The conclusion, therefore, is that Constellation knows what it is about in the acquisition game. It has spent prodigiously but it has spent well.

Triggs said Constellation's latest offer represented "value that fully recognises our strong brands, exceptional workforce and significant international growth opportunities". Sands, added that the acquisition is "a natural fit."

"Donald and I talked about this right from the beginning," Sands told reporters at the announcement. "These two companies were meant to be together."

It may have been a tempestuous courtship, but Sands clearly feels this is a marriage made in heaven.

Sectors: Wine

Companies: Constellation Brands

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