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Constellation Comments on Justice Dept Action

Submitted By: Lewis Perdue, February 01, 2013

VICTOR, N.Y., Feb. 1, 2013 – Constellation Brands, Inc. (NYSE: STZ and STZ.B) issued the following statement today in further response to the U.S. Department of Justice’s (DOJ) action yesterday concerning the proposed Anheuser-Busch InBev (AB InBev) and Grupo Modelo (Modelo) transaction.

Constellation Brands believes the DOJ’s action demonstrates its incomplete understanding of the proposed transaction for at least three primary reasons:
1. Crown Imports, not Modelo, is AB InBev’s competitor in the U.S. Corona and the other Modelo brands are sold in the U.S. by Crown Imports LLC (Crown), a joint venture currently owned 50/50 by Constellation Brands and Modelo. An independent company and one of the industry’s most successful competitors, Crown imports, warehouses, markets, prices and distributes the Modelo portfolio and other products on an exclusive basis across the U.S.

“The Crown team has built its business into the third largest beer company in the U.S., and it is surprising that the DOJ has overlooked the existence and commercial activities of this highly successful and autonomous business,” said Rob Sands, president and chief executive officer of Constellation Brands. “Crown’s President Bill Hackett, a 29-year steward of the Modelo brands, and his team of established beer industry veterans have an outstanding track record of brand building and sales execution in the marketplace.”

“Our Crown team independently develops, implements and refines pricing, promotional and sales strategies for each of our brands in the U.S.,” said Bill Hackett, president of Crown, “and we execute strategies and set distributor tactical priorities based on our objective analysis of the competitive dynamics in each local market. Further, our Crown team is responsible for all marketing decisions, including developing the very successful ‘Find Your Beach’ campaigns that support Corona and other Modelo brands in the U.S. Equally important to consider are the formidable challenges we face to ensure that roughly 170 million cases of beer annually make it safely from multiple foreign breweries to hundreds of distributors and ultimately many thousands of retailers throughout the country.”

2. Constellation Brands’ acquisition of Modelo’s interest in Crown will improve competition. The proposed transaction will enhance Crown’s status as an independent and competitive entity and will strengthen Crown’s position as a growing competitor to AB InBev in the U.S. beer market. Crown will have complete, autonomous control as the brand owner in the U.S. with respect to its distribution, marketing, promotion and pricing of Corona and the other Modelo brands. Critical to Crown’s success is its independent judgment in selecting and collaborating with the best distributor option available in each of Crown’s markets. Underscoring Crown’s successes in this regard, Hackett added, “I am extremely proud of Crown’s track record of working through our industry-leading distributor network to grow share in the highly competitive U.S. beer market, even during challenging economic times.”

3. Crown will have even greater flexibility in responding to competitive factors in each of its markets. The new contract ensures that Crown will benefit from both long-term stability in costs of goods provided by AB InBev and from the operational excellence and global scale of the world’s leading beer producer. As a result, Crown and consumers can benefit from the considerable efficiencies that are expected to be achieved by the AB InBev/Modelo transaction. Additionally, Crown will immediately have access to several more Mexican beer brands to sell in the U.S., and is guaranteed supply of a certain number of new products each year upon request. In terms of shipment priority, Crown will be on parity with the Mexican domestic market. Finally, Crown is empowered to freely innovate and supplement its offerings in the U.S. beyond the Modelo portfolio at Crown’s sole discretion.

Sands reiterated his support for Crown’s role in the transaction by stating: “Constellation Brands has stood behind Crown’s highly admired portfolio of brands not only for the past six years through the Crown joint venture, but also for the preceding fifteen years when Constellation’s subsidiary Barton Beers imported and sold these beers in the western half of the U.S. Constellation is thrilled by the opportunity to redouble its support for Bill Hackett and the entire Crown team in driving Crown’s business to even greater successes in the U.S. in the coming years.”