Constellation Brands Buys Brewery from Modelo -- Update

By Austen Hufford 

Constellation Brands Inc. said Monday that it would buy a Mexican brewery from a subsidiary of Anheuser-Busch InBev NV in order to meet demand for its growing Mexican beer portfolio.

Constellation is buying the brewery for $600 million, which is located in Obregon, Mexico, from Grupo Modelo. The brewery is expected to produce 4 million hectoliters a year with minimal investment and optimization by Constellation and could eventually expand to produce 20 million hectoliters.

In 2013, Constellation bought the U.S. distribution rights for Corona and several other Mexican beers for roughly $5.3 billion from Anheuser-Busch. AB InBev had to divest the assets to get Justice Department approval for its $20.1 billion takeover of Mexico's Grupo Modelo SAB.

In its most recent quarter, Constellation shipped 13% more beer from the same period a year prior, not counting acquisitions. Much of its sales now come from Mexican beers like Corona Extra and Modelo Especial.

The majority of the factory's production is devoted to satisfying an interim supply agreement Modelo.

In January, Constellation said it would spend $2 billion constructing a second Mexican brewery. In light of Monday's deal, Constellation will spend less than previously forecast. Through 2021, it will spend $1.4 billion on the new brewery. It still is planning to spend $2.5 billion on an expansion to its current brewery.

"The magnitude of our long-term investments in Mexico largely remain the same," Chief Finanical Officer David Klein said, noting the change represents a shift in spending from the brewery to be built to the one that will be purchased.

The deal is subject to U.S. Department of Justice and Mexican regulatory approvals and certain closing conditions.

Write to Austen Hufford at [e-mail]

(END) Dow Jones Newswires

October 31, 2016 10:37 ET (14:37 GMT)

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