In the wild and woolly world of mergers and acquisitions, sometimes you just have to walk away.
Despite offering what looked to be a reasonable price, American winemaker Constellation Brands
This was a startlingly hostile merger attempt, seemingly from the get-go. I don't know what it was about Constellation Brands' offer that irked management of Vincor so much, but clearly something did. Perhaps Constellation came off as haughty or opportunistic. Or perhaps it wasn't willing to offer a suitably golden parachute for Vincor management. It's not uncommon for managers in acquired companies to negotiate sweetheart severance packages for themselves, and perhaps Constellation wasn't game.
What makes all of this a bit stranger is that I think it would have been good for both sides. Constellation has executed numerous successful transactions and used them to become a major winemaker in the world. So adding good brands like Vincor's Kumala would certainly have been a plus.
For Vincor, this hasn't been a great year. I show at least four-straight earnings misses -- the stock had spent the entire year in a pretty steady freefall before the Constellation bid. In fact, the stock has fallen from more than C$35 per share at the beginning of the year to as little as C$22. Moreover, Vincor has returns on equity and returns on invested capital that are both in the single digits -- not exactly testament to high-caliber management.
When it's all said and done, Constellation Brands does not need this deal. This is a leading winemaker with a stable of popular brands. The growth that Vincor could add would be welcome at the right price, but Constellation will do just fine in the absence of the deal. From my perspective, investors might see a little less growth but a little more cash flow and debt repayment in the absence of a Vincor buy -- hardly a bad outcome.
Now the onus is on Vincor's management and board of directors. They claim that they have talked to other interested parties who would pay a higher price, but until someone actually comes forward it's sort of like that girlfriend line in the movie The Breakfast Club: "She lives in Canada. ... You wouldn't know her." And I don't expect that a newly-announced dividend and share buyback plan will deliver quite the same sort of value that the Constellation offer would have.
With Constellation Brands' stock taking a hit during the Vincor matter, the shares are now quite a bit more interesting. After all, a well-run alcohol business can certainly keep investors in good spirits. Of course, Fools must do their own due diligence and there are plenty of other interesting ideas out there: Take Central European Distribution
For more spirited takes on the alcohol trade:
Information provided by CapitalIQ was used in this column.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).