Constellation Brands fights off activist investor as it takes business from Bud Light
Constellation Brands (STZ) may have a lot to toast by the time the summer is said and done.
The Corona and Modelo beer maker revealed a settlement with one of its top holders and noted activist investor Elliott Management late Tuesday.
Elliott has agreed to standstill, voting, and confidentiality provisions. Constellation Brands will bring Mondelez CFO Luca Zaramella and former AutoZone CFO Bill Giles onto its board.
"We are among Constellation’s largest investors because we believe the company’s meaningful growth potential, powered by its premier Mexican beer portfolio, is not currently reflected in the company’s stock price, and represents a significant amount of value that can be created from here," Elliott senior portfolio manager Marc Steinberg and portfolio manager Michael Goldberg said in a statement. "We believe that Bill and his team are the right leaders with the right strategy to deliver that value to shareholders through strong commercial execution and focused capital allocation."
Constellation Brands stock rose up to 4% during trading on Wednesday.
The settlement with the veteran investor adds financial heft to Constellation Brands as Wall Street waits for a potential strategic acquisition to jump-start growth at the beer giant. Constellation, which has a history of acquisitions, was rumored to be kicking the tires on a deal for energy drink leader Monster Energy (MNST) in mid-2022, though execs denied it at the time.
It should also remove distractions for management during the peak summer beer demand season.
"We believe a higher multiple is warranted, with Elliott’s involvement decreasing the likelihood of suboptimal capital allocation," Evercore ISI analyst Robert Ottenstein said.
The positive outcome with Elliott comes as Constellation Brands appears to be winning a good amount of market share from stricken rival Anheuser-Busch InBev (BUD), the maker of Bud Light.
Bud Light's volumes plunged 29.5% for the four weeks ending July 2, according to the latest data from Nielsen. Bud Light Seltzer volumes crashed by 55.6%.
By comparison, Corona Light's volume rose 9.8%. Molson Coors looks to be wresting market share from Bud Light too. Volumes for Coors Lite and Miller Lite gained 17.2% and 12.2%, respectively, over the four-week measurement period.
The decline for Bud Light started after transgender influencer Dylan Mulvaney created an Instagram post during the March Madness basketball tournament endorsing the light beer.
Following the post on April 1, ABInBev saw Bud Light sales trend lower through April. The declines accelerated following an April 3 video from country musician Kid Rock, which spurred a wider boycott by many on the right.
Alissa Heinerscheid — Bud Light's vice president of marketing — left the company in late April amid the controversy.
Over the last 12 weeks, Bud Light volumes have fallen a sharp 27.1%, per Nielsen.
"We also believe that the Bud Light controversy is benefiting Constellation Brands, although of course not nearly as much as Molson Coors," Ottenstein added. "We can see pretty clearly a pick-up in Corona Light in the scanner data."
The analyst reiterated an Outperform rating on Constellation Brands. He lifted the price target to $300 from $260, which assumes 13% from current trading levels.
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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