Constellation Brands Looking to Buy Chateau Ste. Michelle? | Wine Enthusiast
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Constellation Brands Looking to Buy Chateau Ste. Michelle?

Slipped into Tuesday’s Wells Fargo research report on Constellation Brands’ (ticker STZ) dominance of the beer industry—its Corona, Modelo and Pacifico brands show no signs of slowing sales—are arguments why one of the largest publicly traded wine companies should consider buying more wine.

Wells Fargo Managing Director Bonnie Herzog, head of the investment bank’s tobacco and beverage coverage, argues that beginning in Constellation Brands’ Fiscal Year 19 (next year), the maker of Robert Mondavi, Clos du Bois, Franciscan Estates, Ravenswood and Manischewitz among others, will begin to have funds for an acquisition. By FY21, she estimates it will have $8 billion to $10 billion in buying power.

Wells Fargo Managing Director Bonnie Herzog / Photo courtesy Wells Fargo

“We think that STZ could opportunistically acquire larger brewers or wine and spirits manufacturers, including MO’s (Altria’s) Ste. Michelle Wine Estates and Treasury Wine Estates [both long-speculated on in the press…without commentary from any company recently],” Herzog’s group writes.

Neither Ste. Michelle Wine Estates nor Constellation Brands would comment on the report. A spokeswoman for Treasury Wine Estates, in an email, called the Wells Fargo report “purely speculative and we don’t comment on speculation or rumor.”

Constellation Would Gain Internationally

Ste. Michelle is a top producer of premium wines with brands such as Columbia Crest and 14 Hands helping it to gain acclaim. Owned by Altria, Ste. Michelle is profitable with solid mid-20 percent margins, but even with $746 million in sales in last year, the wine business makes up less than 3 percent of Altria’s overall sales and less than 2 percent of its operating profit.

“In fact, according to scanner data, Ste. Michelle’s wine is priced on average at a nearly 50-percent premium to STZ’s and only 5 percent of its wine volume,” Herzog notes. She values a takeover of Ste. Michelle at between $3 billion and $4 billion.

The rationale for buying Treasury is that it would provide a large brand (Beringer) and give Constellation ready access to more international markets. Herzog estimates such an acquisition would cost about $8 billion to $12 billion.

It also should be noted that Wells Fargo is an underwriter for Constellation Brands and does business with the company, however, no part of Herzog’s compensation is related to the specific recommendations or views expressed in the report.