Constellation buys Mexican brewery from Modelo

Constellation Brands has agreed a deal to purchase Obregon Brewery from Grupo Modelo – a subsidiary of Anheuser-Busch InBev – for $600 million.

Constellation completed its acquisition of Grupo Modelo’s US beer business from AB InBev for $4.75 billion in June 2013.

Constellation Brands confirmed today that it is to submit to the US Department of Justice a proposal to acquire a brewery operation from Grupo Modelo, located in Obregon, Mexico.

“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, Constellation Brands.

The Obregon brewery is located on Mexico’s west coast in the state of Sonora and will help strengthen growth opportunities in the premium US beer market.

The company completed its acquisition of Grupo Modelo’s US beer business from AB InBev for $4.75 billion in June 2013, giving it control of US imports of Corona and Modelo Especial, but tying it into a supply agreement with Grupo Modelo. This acquisition will enable the company to become fully independent from that agreement, freeing up much of the brewery’s production for its own exports.

It follows the company’s announcement last year that it would be investing $2 billion on building a new Mexicali brewery.  In light of this deal, Constellation will now spend slightly less than previously stated, estimating its costs at $1.4 billion through to 2021 on building its new brewery.

It is still planning to spend a further $2.5 billion on expanding its current brewery and bottle plant in Nava, Coahuila. Minimal investment is expected in the Obregon brewery, which is expected to contribute four million hectolitres to the company’s total production in Mexico.

“The magnitude of our long-term investments in Mexico largely remain the same”, added David Klein, executive vice president and chief financial officer of Constellation Brands.

“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 hectoliters to support the future growth of our beer business, which continues to significantly outperform the US beer market.”

Earlier this month Constellation bought the High West whiskey distillery in Utah, but sold its Canadian business to an Ontario-based teachers’ pension plan for CAN$1 billion, including wine brands such as Jackson-Triggs and Inniskillin. In April it bought California’s The Prisoner Wine Company portfolio from Huneeus Vintners for a reported $285 million (£202m).