Constellation Brands would entirely finance Mondavi acquisition with bank debt

By Sara Rosenberg

New York, Oct. 19 - Constellation Brands Inc. has received commitments for bank debt financing to fully fund the $1.3 billion acquisition of Robert Mondavi Corp., assuming Mondavi accepts the buyout offer, company officials said in a conference call Tuesday.

"We are planning on financing this with debt, bank debt in particular by expanding our syndicate loan," officials said in the call, adding that the assumed financing rate for this new bank debt is 25 to 50 basis points under 5%.

"Unlike the Hardy transaction we have no plans to follow up with an equity offering. The reason is very simple. Today, Constellation's debt to EBITDA is falling below three. When we combine the two companies our debt to EBITDA will be a little above four and because of the significant cash flow, will be falling very rapidly so we see no reason to balance our capital structure with equity this time," officials added in the call.

Last year, Constellation acquired BRL Hardy Ltd. using bank debt to finance the transaction, but soon after, the company came to market with common stock and mandatory convertible preferred stock offerings that were used to repay the bridge loans and some of the term loan debt that was incurred as a result of the acquisition.

Under this latest offer, Constellation told Mondavi that it would pay class A shareholders $53 per share in cash and class B shareholders $61.75 per share in cash. The total value of the transaction comes out to about $1.3 billion, including about $970 million of equity on a fully diluted basis plus the assumption of about $333 million of Mondavi net debt.

"We would like to commence discussions with Mondavi immediately with a goal of entering into a merger agreement with Mondavi as soon as possible," said Richard Sands, chairman and chief executive officer, in a company news release. "The Mondavi board of directors has expressed its commitment to maximize shareholder value and has indicated that Mondavi would meet with us to discuss our offer. We are prepared to begin immediately."

Constellation Brands is a Fairport, N.Y.-based producer and marketer of beverage alcohol brands.

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