Dive Brief:
- Constellation Brands has announced a $600 million acquisition of a brewery in Obregon, Mexico, from Anheuser-Busch InBev subsidiary Grupo Modelo, pending regulatory approval, according to a company news release.
- With this acquisition, Constellation immediately takes on the brewery capacity, which will enhance the company's efforts to expand its fast-growing, high-end Mexican beer portfolio. Constellation also assumes more flexibility for future innovation efforts, as it will be completely independent from its interim supply agreement with Grupo Modelo.
- "Constellation will phase the buildout of 10 million hectoliters at Mexicali, with the first 5 million hectoliters of production capacity expected to become operational by December 2019," the news release states. That production could expand over time to upwards of 20 million hectoliters.
Dive Insight:
This purchase aligns with Constellation's efforts in recent years to expand its beer portfolio, particularly Mexican beer varieties. This enables Constellation to be a more international company and to reach the fast-growing population of Mexicans and other Latino demographics immigrating to the U.S.
The Obregon brewery is tactically located to serve the Mexicali market, and its purchase enables Constellation to reduce its expected annual cost expenditure on the brewery. As a result, Constellation raised its anticipated cash flow for the year, increasing from a range of between $375 million and $475 million to between $575 million and $675 million.
AB InBev's shares posted a slight downturn in premarket trading following the announcement. But along with the additional capital from the divestiture, AB InBev now also has SABMiller's portfolio of brands to manage, which includes several other Latin American-based beers. That could have made the Grupo Modelo brewery superfluous to its global production empire, particularly since AB InBev sold its U.S.-based Grupo Modelo brands to Constellation in 2013.