October 18, 2016

Constellation Brands Inc. announced it has reached an agreement to sell its Canadian wine business to Canada’s Ontario Teachers’ Pension Plan for C$1.03 billion (US$780 million).

The sale is part of the group’s shift in strategy toward focusing on beer and premium drinks, two segments that offer higher margins and greater potential for growth – and is a move that was signaled in April of last year when Bloomberg reported that Constellation was considering an initial public offering for a portion of its Canadian wine business. However, after the group received bids for the business from various quarters including Ontario Teachers’, the decision was made in October to sell, according to Wine Spectator.

“We seized the opportunity to sell the entire business in a value-enhancing transaction when it presented itself,” Rob Sands, chief executive officer of Constellation told Bloomberg. “The Canadian wine business is the leader in the Canadian wine market and is a long-term growth opportunity.”

Constellation acquired the Canadian business ten years ago with the purchase of Vincor International Inc. based in Mississauga, Ontario for C$1.27 billion. Becoming the owner of seven of the country’s top 20 wine brands including the top selling Jackson-Triggs and top selling ice wine, Inniskillin, Constellation was the self-proclaimed leading wine company in Canada’s $9.2 billion wine market.

This divestment will leave Constellation more centered on its beer division which it expanded in 2013 with the acquisition of the U.S. Corona brand and again in 2014 with the acquisition of the craft brewer, Ballast Point for $1 billion.

U.S. Wine

Wine is not totally out of favor with Constellation however, as the group also announced its agreement to acquire the U.S. Charles Smith Wine portfolio of five ultra-premium wines including Kung Fu Girl Riesling, Velvet Devil Merlot, Boom Boom! Syrah, Eve Chardonnay, and Chateau Smith Cabernet Sauvignon, for $120 million.

This acquisition, which is expected to close in October, will propel Constellation to being the second biggest supplier of Washington State wines, which have posted double-digit growth in volume over the past three years. It also reflects the group’s pivot toward more premium offerings.

The Pension has Plans

Canada’s wine market is expected to see a compounded annual growth rate (CAGR) of 3.9 percent through 2020, according to Euromonitor- a fact not lost on Ontario Teachers’.

“Constellation Brands Canada is an ideal addition to our Consumer Portfolio,” said Jane Rowe, Senior Vice-President, Private Capital in a recent statement. “The company is already the undisputed market leader in the Canadian wine industry and has excellent potential for continued growth and value creation.”

Headquartered in Toronto, and with offices in Hong Kong and London, Ontario Teachers’ had $171.4 billion in net assets as of December 31, 2015, making it the single largest pension plan in Canada. It manages 80 percent of these assets in-house, earning an annualized rate of return of 10.3 percent since the plans launch in 1990.

Ontario Teachers’ says it will be partnering with the management team at Constellation to bring the business to its full potential.

“We look forward to partnering with Constellation’s impressive management team and President and CEO Jay Wright to capitalize on long-term growth trends in the wine industry,” stated Jane Rowe. “Constellation delivers stable and predictable cash flows and provides us with an excellent investment platform in this growth industry.”