Constellation Brands has entered into an agreement to sell its value spirits business, including Montezuma tequila, to New Orleans-based Sazerac Company for $334 million, subject to closing adjustments.
The transaction is subject to routine and customary regulatory review, and is expected to close by the end of February 2009.
The entire net after-tax proceeds of approximately $210 million will be used to reduce Constellation's borrowings. The sale price includes $274 million in cash and $60 million in medium-term financing by Constellation at market interest rates.
As a result of this transaction, Constellation is divesting more than 40 brands including Barton, Skol, Mr. Boston, Fleischmann's, the 99 schnapps line, the di Amore line, Chi-Chi's pre-mixed cocktail line, Montezuma Tequila, in addition to numerous other brands representing over 600 SKUs. The total volume for brands being sold was more than 10 million cases for fiscal year 2008, with net sales for the divested brands totaling approximately $200 million. Distillery and bottling facilities included in the sale are located at Bardstown and Owensboro, Ky., as well as a leased bottling facility at Carson, Calif. Constellation will retain its distillery and production facility at Lethbridge, Alberta, Canada. For complete listings of brands being sold and retained, please visit www.cbrands.com.
Rob Sands, Constellation Brands president and chief executive officer said: “This transaction is consistent with our strategic focus on premium, higher-growth and higher-margin brands in our portfolio, and allows us to continue the process of reducing debt, generating free cash flow, creating efficiencies and increasing ROIC.
"With the proceeds from asset sales, along with our targeted free cash flow for fiscal 2009, we now expect our debt to comparable basis EBITDA ratio to be approximately four times by the end of the current fiscal year, which underscores the effectiveness of our focus on cash flow generation."
Spirits brands the company is retaining include SVEDKA Vodka, Black Velvet Canadian Whisky and Paul Masson Grande Amber Brandy. SVEDKA Vodka is the fourth largest imported vodka brand in the U.S.
Sands added: "To achieve synergies and operating efficiencies we will consolidate the retained premium spirits business into our North American wine operations.”
The transaction is expected to result in a pre-tax reported loss of approximately $11 million or an after-tax loss of approximately $0.20 diluted earnings per share on a reported basis, and will be excluded from the company's comparable basis diluted earnings per share.
While many employees associated with the brands being sold will transfer to the new owner, some will be impacted by this change and the company is taking appropriate actions to support those who are displaced.