Fortune Brands Sells Wine Business to Constellation

13/11/07 Fortune Brands, Inc. and Constellation Brands, Inc. have announced a definitive agreement for the sale of Fortune Brands’ U.S. wine business to Constellation Brands. The sale includes brands such as Clos du Bois, Geyser Peak, Wild Horse, Buena Vista Carneros and Gary Farrell, as well as the associated vineyards, winemaking assets and sales organization. The purchase price is $885 million. Fortune Brands estimates it will realize net proceeds of approximately $840 million after taxes, and the company estimates it will also realize an after-tax gain of $50-60 million on the sale.

The business to be acquired includes some of California's most highly regarded wineries. The portfolio represents approximately 2.6 million cases. Brands being acquired include Clos du Bois, a leading super-premium wine, Geyser Peak and Wild Horse, a top luxury wine brand. More than 1,500 acres of vineyards in Napa, Sonoma and Carneros, Calif., are included in the purchase, in addition to five California wineries.

"This portfolio is an excellent fit and furthers our strategy of exceeding consumer expectations and expanding our presence in the growing high-end segments of the wine market," said Rob Sands, Constellation Brands president and chief executive officer. "We are delighted about the prospect of adding these wineries and brands to our existing portfolio, which will enhance our growing position in the U.S. premium wine business. As an example, Clos du Bois, a two million case brand, has a history of strong consumer brand equity, growth and profitability. We also look forward to working with the people who have been responsible for the tremendous success of these wines."

Constellation estimates that on a comparable basis this acquisition will be slightly accretive to diluted earnings per share for fiscal 2009 and modestly dilutive for fiscal 2008, assuming the transaction closes by Dec. 31, 2007. A plan for the integration of this acquisition into Constellation will be finalized after the close of the transaction, and the company will determine the best way to effectively assimilate the brands and facilities. The transaction will be financed with debt and is subject to customary and routine regulatory approvals and other closing conditions.

“Positioning our businesses for higher returns is a key part of Fortune Brands’ strategy to maximize shareholder value,” said Norm Wesley, chairman and chief executive officer of Fortune Brands. “Because the wine industry is lower margin and more capital intensive than spirits, it’s naturally a lower return segment relative to our spirits business. This sale increases our financial flexibility and will enable us to more sharply focus resources on the higher return premium spirits segment of our business.

“While our Beam Wine Estates unit is one of the most attractive businesses in the U.S. wine industry, a long-term strategic review concluded that focusing resources on the higher return premium spirits segment rather than wine is the right capital allocation strategy for Fortune Brands going forward. Given the combination of the future capital requirements for our wine business, its lower returns relative to spirits, and significant interest from potential buyers, we believe this is the right move for long-term shareholder value,” Wesley added.

Because Fortune Brands’ spirits and wine brands each have separate sales organizations, the company does not expect the sale to be disruptive to its spirits portfolio. Fortune Brands will retain the Harveys sherry and Cockburn’s port brands.

The wine brands included in the transaction had sales in 2006 of 2.6 million 9-liter cases and revenues of $214 million including excise taxes. The majority of the volume is driven by Clos du Bois, the #2 super-premium U.S. wine brand. Fortune Brands’ wine unit, Beam Wine Estates, is based in Sonoma County in California.

Fortune Brands initiated a sale process after a strategic review of the wine business. The process resulted in multiple offers for the wine business and the agreement announced today. The sale is subject to customary closing conditions and is expected to close in the current quarter. Fortune Brands expects the sale to be slightly dilutive to 2008 earnings.

Fortune Brands was advised on the transaction by Citi and Credit Suisse as financial advisors and Pillsbury Winthrop Shaw Pittman as legal advisor.