New York, May 29 - Constellation Brands Inc, which sells beers like Corona and Negra Modelo in the United States through a joint venture with brewer Grupo Modelo, would not be affected if Anheuser-Busch Cos Inc were acquired by InBev NV, its chief executive said on Thursday.
Constellation, which owns wine brands such as Ravenswood and Robert Mondavi as well, also affirmed its earnings outlook for fiscal 2009.
The comments came as InBev, the Belgium-based maker of Stella Artois and Beck's, considers making a bid for the U.S. maker of Budweiser and Michelob, according to a source familiar with the situation, in order to get a strong toehold in the U.S. market.
St. Louis-based Anheuser, which controls about half the U.S. beer market, also owns half of Modelo. Credit Suisse analyst Carlos Laboy suggested last week that Anheuser could seek to buy the rest of the Mexican brewer in an effort to thwart a takeover.
If Anheuser did buy the other half of Modelo, Constellation Brands would be affected, Chief Executive Rob Sands said in a presentation to analysts, which was broadcast over the Internet.
Sands said Anheuser would have to either renew the contract with Constellation or pay it "fair market value," or 8 times earnings before interest and tax, for its half of the business.
Another possible scenario that cannot be ruled out, Sands said, is that Modelo could seek to buy back its shares that Anheuser owns. But when merger talk about Anheuser and InBev surfaced last year, Modelo's CEO said buying out Anheuser was unlikely. Sands said on Thursday that it would be "somewhat out of character" for Modelo.
The joint venture agreement between Constellation and Modelo, which was announced in July 2006, runs through Dec. 31, 2016. It renews in 10-year periods unless Modelo gives notice prior to the end of the seventh year of any term.
EVOLVING PORTFOLIO
Constellation Brands, which owns the world's largest wine business, has been trying to move its wine portfolio upscale. It recently sold value brands like Inglenook and Almaden and bought more expensive brands like Clos du Bois and Geyser Peak.
That will help the company reach its target for the U.S. wine business to increase its net sales per case by a double-digit percentage rate this year.
Constellation's chief financial officer, Bob Ryder, said the company still expects to earn $1.68 to $1.76 per share, excluding items, for the fiscal year ending in February 2009.
He also said the global credit crisis has had no impact on the company's access to capital markets or ability to get funding. As of Feb. 29, the company had $5.26 billion of debt on its balance sheet, it said.
Constellation is still interested in acquisitions, Sands said, but added that the landscape was not very ripe. He said beer acquisitions were not a priority, due to the Modelo venture and that current multiples for spirits companies on the block were prohibitively high.
As for the wine business, Sands said it was still very fragmented and that opportunities to make bigger acquisitions were scarce.
Sands also said Constellation was not affected too badly by the current slowdown in U.S. consumer spending. Echoing comments by other alcoholic drinks executives, Sands said tough times may make people go out less, but they tend to just drink more at home.
"The principal impact of the economy has been venue shift," Sands said.
Including a slight increase on Thursday, Constellation shares have gained 17 percent over the last 20 days, due in part to a belief that growth in the wine industry has not slowed and that Corona sales volumes have recently rebounded, according to Morgan Stanley analyst William Pecoriello.
The shares closed up 13 cents at $21.13 on the New York Stock Exchange on Thursday.