Constellation Brands Announces UK Joint Venture for Matthew Clark

18/04/07 Constellation Brands, Inc., a leading international producer and marketer of beverage alcohol, announced the formation of a joint venture with Staffordshire, England-based Punch Taverns plc that will reinforce Matthew Clark's position as the U.K.'s largest independent premier drinks wholesaler and distributor serving the on-trade drinks industry.

Under the terms of the arrangement, Constellation Europe and Punch Taverns have each become 50 percent owners of Matthew Clark and provide representation on a new holding company board. On a day-to-day basis the business will continue to be run by Steve Thomson, currently managing director of Matthew Clark Wholesale Limited, and his management team.

The joint venture will benefit customers, suppliers and employees. Capital investment will further enhance Matthew Clark's reputation for providing outstanding customer value, additional branded products and a faster, more efficient route-to-market to the U.K. on-trade industry consisting of hotels, pubs, clubs and restaurants.

For supply partners, Matthew Clark intends to become a more effective, efficient and complete route-to-market for their brands, including Constellation Europe's existing branded wine offerings.

From the outset, Matthew Clark will supply a number of Punch Taverns pubs with a portfolio of wines and spirits, and will progressively become the preferred supplier of choice to the remaining tenanted Punch Taverns pubs. The pubs will benefit from the scale and variety offered by Matthew Clark's wine and spirits expertise, extensive drinks portfolio and supply chain capabilities.

The joint venture will invest in Matthew Clark's distribution infrastructure for such items as updated warehouse management and route scheduling software, which will enable more rapid response rates for customers, faster and more efficiently processed orders and a wider reach across the British Isles through its highly skilled and knowledgeable sales team.

"Our joint venture with Punch Taverns is an innovative drinks distribution initiative that will transform the business to one with a focus on providing improved service and an unequalled portfolio of drinks options to on-premise customers," stated Rob Sands, Constellation Brands president and chief operating officer. "Given the importance of the U.K. on-premise drinks business, this joint venture helps assure that Matthew Clark, its customers and, most important, consumers can benefit from distribution efficiency gains and expanded beverage offerings. We believe this collaboration will establish a new benchmark for wholesale drinks distribution in the U.K. and it should result in additional long-term growth for Matthew Clark."

The transaction closed. Although terms of the agreement were not disclosed, Constellation Brands expects to receive approximately AGBP85 million (approximately $168 million U.S.) of cash proceeds from formation of the joint venture, subject to post-closing adjustments. This includes AGBP35 million from Punch Taverns with the remainder coming primarily from the issuance of debt by the joint venture.

On April 5, 2007, Constellation Brands issued a news release containing, among other items, diluted earnings per share guidance for fiscal 2008 and certain related assumptions. The transaction announced affects certain estimates and assumptions set forth in that news release.

The transaction is not expected to result in a gain or loss. The company expects to incur a charge for the provision for income taxes associated with the repatriation of the proceeds from the transaction. This is expected to result in a $0.05 reduction to the company's fiscal 2008 diluted earnings per share ("EPS") as reported under generally accepted accounting principles ("reported"), and will be excluded from the company's comparable basis diluted earnings per share.

The impact of this transaction, including joint venture formation costs, is expected to be neutral to slightly dilutive to ongoing reported basis and comparable basis diluted earnings per share in fiscal 2008.

As a result of this transaction the company now expects its fiscal 2008 reported interest expense to be in the range of $300 - $310 million. The company expects its reported tax rate for fiscal 2008 to be approximately 40 percent, which includes a provision of approximately two percent related to the repatriation of the proceeds from the transaction, or approximately 38 percent on a comparable basis.

Constellation will report its investment in the joint venture under the equity method of accounting in its consolidated financial statements. For net sales in fiscal 2008, the company expects low single-digit growth in organic net sales and low single-digit incremental benefit from the acquisitions of Vincor and SVEDKA. As a result of these increases, and the impact of reporting the Crown Imports joint venture and the joint venture for the Matthew Clark wholesale business under the equity method, reported net sales are expected to decrease 30-32 percent.

Due to the anticipated impact on reported earnings, the company is adjusting its reported diluted EPS outlook for fiscal 2008 from that set forth in its April 5, 2007, news release, to $1.16 - $1.26. The company's comparable diluted EPS outlook for fiscal 2008, as set forth in the company's April 5, 2007, news release, is unchanged.