Definition: Constellation Brands Inc.

The world's largest group, headquartered in Fairport, New York, is a producer and distributor of spirits, wines, beers and all categories of alcohol and other aperitifs. With a range of over 200 beverages, its offering remains unrivalled. Its size is a combination of organic growth and acquisitions. Constellation Brands is divided into two operating divisions: Constellation Wines and Constellation Beers and Spirits.

The American group Constellation, the world's leading wine producer, plans to consolidate its distribution activities and increase its storage and bottling capacity in the United Kingdom to cope with the growth of its business in Europe. Its current distribution centre, based in Bristol, has a capacity of 24 million bottles per year. The new plant, which is scheduled to open in 2009, will have a capacity of at least 53 million bottles. Its location is still under consideration. The American group hopes this will reduce the transport and manufacturing costs of its European subsidiary.

5 June 2006 is a very special day for Constellation as the Company welcomes Vincor into its international family of dynamic employees, markets and brands in the alcoholic beverage industry, a family whose members share a common vision of creating value by growing our business," said Richard Sands, President and Chief Executive Officer of Constellation Brands. "As we have stated publicly many times since our announcement on 3 April, this is a natural fit that is mutually beneficial in terms of geographic reach and brand portfolio, and creates a team of world-class entrepreneurs capable of sustaining growth into the future. Over the next few weeks, we will finalise our consolidation plan, which will bring together the best practices of both organisations. Today marks another important milestone in Constellation's growth."

In Canada, the company will continue to operate under the name Vincor Canada, which is a separate entity from Constellation's wineries around the world. The acquisition of Vincor makes Constellation the leading wine company in Canada, which is becoming the fifth largest market in the world, and strengthens its position in the four other major markets: the United States, Europe, Australia and New Zealand. Constellation now has approximately 10,000 employees and 250 brands, and as the world's leading winery, produces approximately 110 million 9-litre barrels of branded wine per year, equivalent to approximately 1.3 billion 750 ml bottles.

The American company Constellation Brands, the world's leading wine group and owner of Corona beer, has revived the consolidation movement in a sector still recovering in the United States by acquiring the family-owned Robert Mondavi group for £1 billion.

With this move, Constellation Brands has further extended its lead over its competitors, with a 3.5% share of the global market. It already controls a fifth of the US market. "Constellation's story is incredible. Ten years ago, it was a small group on the East Coast of the United States," says Cyrill Penn, editor-in-chief of WineBusiness Monthly magazine. After more than a dozen acquisitions, Constellation became the world's leading wine merchant in 2003 when it merged with Australia's BRL Hardy. It now owns more than 200 alcohol brands, including Chilean and Australian wines, as well as Corona and Tsingtao beers.The latest transaction, the acquisition of Mondavi, which should be finalised in early 2005, "is definitely positive for the group. The brands in Mondavi's portfolio are strong, and Mondavi will benefit from Constellation's extensive distribution network around the world, particularly in the United Kingdom," says Enishka Clarke, an analyst at Standard and Poor's.

Constellation therefore shows no signs of slowing down and should once again succeed in absorbing its latest acquisition. The takeover, which is expected to generate profits from the first financial year, "will create value that will be distributed to shareholders," says Ms Clarke.

She believes that the group's finances should be strong enough not to be affected in the short term, even though Constellation has committed to taking on £240 million of debt from Mondavi, a group that was undergoing a reorganisation process prior to its acquisition in order to lower its costs and restore its financial health.

"A few months ago, if Constellation executives had said they were going to buy Mondavi, everyone would have thought they were bad guys. But with everything that has happened at Mondavi in recent months, Constellation ultimately looks like the white knight!" sums up Cyrill Penn.

Affected by overproduction of grapes in California's vineyards, Mondavi announced in September its intention to sell its luxury brands, on which it had built its reputation, in favour of cheaper wines. Constellation has agreed to keep Oakville, in California's Napa Valley, as the historic headquarters of the family-owned group founded in 1966, and not to sell off any of its divisions. More generally, however, this takeover could herald a phase of consolidation in a resurgent American market, which is estimated to have between 3,000 and 4,500 wineries.

"Industry players are now wondering whether this acquisition will trigger a new wave of consolidation, particularly given the structure of the US industry, where around 30 major players account for 95% of volumes," explains Mr Penn.

The consolidation of the US wine industry, which now ranks fourth in the world behind Italy, France and Spain, with 7% of global wine production, according to the National Wine Association, WineAmerica, "is inevitable," he concludes.