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June 30, 2022

Constellation Brands to overhaul share structure

Corona beer brewer has struck a deal with the Sands family, which holds majority voting control of the US-based group.

By Dean Best

Constellation Brands is set to shake up its shareholding arrangements through a deal with the family that holds majority voting control of the US business.

The Corona beer brewer has struck a deal with the Sands family to eliminate the group’s Class B shares.

At present, the family, through the Class B stock, holds about 60% voting control of Constellation Brands. The proposal, approved by the company’s board and set to go before a shareholder meeting, will take that percentage down to circa 20%.

“The proposed share reclassification will strengthen the company’s corporate governance profile by aligning voting rights with the economic interests of all shareholders,” Constellation Brands president and CEO Bill Newlands said. “In addition, the company’s simplified capital structure will provide a solid foundation as the company continues to pursue its strategic growth initiatives and capital allocation priorities to build shareholder value.”

Under the terms of the deal with the Sands family, each outstanding share of Class B common stock, including those owned by the family, will be converted into the right to receive one share of Class A common stock plus cash. The cash element will be US$64.64 per share of Class B common stock or a total amount of $1.5bn.

Once the changes to the Constellation Brands share structure are in place, Robert and Richard Sands – the group’s executive chairman and executive vice-chairman – will step down from their roles.

Robert Sands will become non-executive chairman, while Richard will retain a seat on the company’s board. Constellation Brands expects the Sands family will continue to be its largest shareholder.

Constellation Brands also filed Q1 numbers

The announcement of changes to the Constellation Brands share structure came alongside the publication of its fiscal first-quarter results, which included rising net sales and underlying income on the corresponding period twelve months ago.

Constellation Brands’ net sales increased 17% to $2.36bn in the three months to 31 May.

Net sales from beer, which also includes brands such as Modelo, were up 21% at $1.9bn, with depletions 8.7% higher.

The net sales from the group’s wine and spirits division grew 2% to $465m, with depletions up 1.2%.

Operating income from beer grew 13% to $762.8m but from wine and spirits fell 13% to $91m.

Group operating income was up 10% on a comparable basis at $793m. On a reported basis, operating income stood at $816.4m, versus $75.1m a year earlier, when impairment charges linked to the beer business weighed on profits.

Comparable net income attributable to Constellation Brands rose 10% to $504m. On a reported basis, net income hit $399.3m, against a loss of $897.3m the year previous. At the time, the company’s bottom line was further affected by losses on unconsolidated investments.

“The real news of the day is that the Sands Family B shares are to be eliminated,” Bernstein analysts Nadine Sarwat and Trevor Stirling wrote in a note to clients today.

“This is a meaningful positive for the stock. In the short term, we should see a multiple re-rating from better corporate governance. In the long-term, it could provide Constellation a path to break from its catch-22 bind: it needs to invest beyond Mexican beer to avoid the inevitable generation shifts in consumer preferences but cannot due to the market’s mistrust.”

Just Drinks analysis: Constellation Brands Performance Trends 2018-22 – results data

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