Constellation Purchases Fortune’s U.S. Wine Unit for $885 Million

Fortune Brands announced Monday it would sell its U.S. wine business to Constellations Brands, already the world's largest wine producer, for $885 million. The labels being sold will include Clos du Bois, Geyser Peak, and Wild Horse brands. Constellation will add the labels to its current portfolio of wine labels, which is already made up of Robert Mondavi and Ravenswood, among others. From the sale, Fortune estimates net proceeds will be $840 million after taxes, and it will realize an after-tax gain of $50-$60 million. It will now have to rely more on its revenue from spirits like bourbon, scotch, and cognac. Fortune CEO Norm Wesley said, "Because the wine industry is lower margin and more capital intensive than spirits, it's naturally a lower return segment relative to our spirits business. This sale increases our financial flexibility and will enable us to more sharply focus resources on the higher return premium spirits segment of our business." Constellation noted the purchase will "modestly" lower fiscal 2008 earnings and "slightly" increase profits in fiscal 2009, assuming the deal closes by December 31st , as expected. Fortune Brands, which did not trade pre-market, ended Friday's session down 1.7% to $79.17. Constellation traded down 3.0% to $22.30 in pre-market trading Monday.

Sources: Reuters, Wall Street Journal
Commentary: Fortune Brands: Whisky, Golf... and Strong Dividends • Portfolio Management In Increasingly Volatile Markets • As the Price of Beer Rises, is Inflation a Concern?
Stocks to watch: FO, STZ. Competitors: DEO, TAP, BUD. ETFs: PBJ, XLY.
Earnings call transcript: Constellation Brands, Inc. F2Q08 (Qtr End 8/31/07)

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