Alcoholic beverage distributor Constellation Brands
Despite the rejection last month of its unsolicited $1.2 billion bid for Canadian vintner Vincor as too low, the owner of such wine labels as Almaden, Robert Mondavi, and Ravenswood reiterated it would be initiating its hostile takeover. Vincor repeated its assertion that Constellation's offer undervalues the company and discounts future earnings.
Constellation has offered Vincor stockholders $26.45 a share, or $900 million in cash -- and has agreed to assume $260 million in debt. The offer represents a 39% premium to Vincor's closing price on the Toronto Stock Exchange as of Sept. 8, the day before the original bid was made. Vincor was hoping for more and said that Constellation had verbally agreed to a price of about $31 a share.
Vincor is North America's fourth-largest winery with approximately $558 million in fiscal year 2005 revenues. The stock has fallen this year from its January highs of $31 a share: First-quarter profits soured as the result of soft European and Australian markets and an excess of red wine supplies. Constellation is the world's largest winemaker, a position it attained through the acquisition of BRL Hardy in 2003 and Robert Mondavi in 2004. Annual sales exceed $4 billion and have been growing at about 15% per year.
While tucking in Vincor's wine labels with its own would solidify its leading position, the credit rating agencies are looking askance at the deal. Standard & Poor's put Constellation's BB corporate credit rating on "CreditWatch with negative implications," while Moody's considered downgrading its rating of Constellation credit to "Ba2" -- its second-highest junk rating -- after the announcement of last month's bid for Vincor. It is feared that Constellation is stretching its debt capacity a bit too thinly. The company has more than $2.7 billion in long-term debt and only $18 million in cash. It was not without some sighs of relief that it lost out in its bid last month for the assets of Allied Domecq to Pernod Ricard and Fortune Brands
Constellation may have been emboldened by the fact that no other suitors stepped forward after its initial bid, despite Vincor's suggestion that it had identified five potential buyers who might soon be making offers. It is taking its bid directly to the shareholders and has said the offer expires at the end of November, proving that when it comes to the rough and tumble of the marketplace, "no" doesn't always mean "no" and you need not take it for an answer.
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