Constellation Brands has agreed to acquire a brewery in northwestern Mexico from Grupo Modelo for $600 million.
The brewery, located in Obregon, in Sonora state, is expected to have 4 million hectolitres of production capacity with minimal investment and optimisation by Constellation after closing. The transaction is subject to customary closing adjustments and regulatory approval from the US Department of Justice and officials in Mexico.
The acquisition will allow Constellation to immediately obtain functioning brewery capacity to support its high-end Mexican beer portfolio and provide flexibility for future product launches. It will also enable the company to become fully independent from the interim supply agreement that it currently has with Anheuser-Busch-owned Grupo Modelo.
As a result, Constellation will phase in an expansion of 10 million hectolitres in Mexicali, with the first 5 million hectolitres of production capacity expected to become operational by December 2019, and subsequent capacity planned to align with future growth.
“We believe this is the right strategy to provide near-term capacity and greater flexibility to support our growth and innovation plans, while allowing for the buildout of our Mexicali brewery over an extended time period,” said Rob Sands, president and chief executive officer of Constellation Brands. “We look forward to welcoming Obregon’s talented employees to our Constellation family and working together to continue to capture the ongoing growth opportunities we see in the high-end segment of the US beer market.”
“The magnitude of our long-term investments in Mexico largely remain the same,” added Constellation executive vice-president and chief financial officer David Klein. “The revisions to our operating plans essentially represent an initial shift in spend to Obregon from Mexicali. This will result in an increase in our free cash flow estimate for fiscal 2017 to a range of $575-$675 million. As originally outlined, Mexicali is scalable to 20 million hectolitres to support the future growth of our beer business, which continues to significantly outperform the US beer market.”
The company expects to spend a total of $3.9 billion on by 2021 on expansion projects at its Mexicali and Nava breweries.
© FoodBev Media Ltd 2020