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Corona parent Constellation Brands shares on pace for record as big investor deepens its involvement to make it less of a family-controlled company

By Bill Peters

Under deal with Elliott Investment Management, Constellation will appoint two execs with experience at AutoZone and Mondelez to board, and share 'certain confidential information'

Shares of Constellation Brands Inc. were on track to hit a record high, a day after a large investor took steps to wield greater influence over the beer and wine maker's board -- a move Wall Street analysts said would help further steer corporate governance away from family control.

Constellation Brands (STZ) stock was up 5.6% on Wednesday afternoon, and trading at $266.94.

The gains came after Constellation on Tuesday said it would appoint two new independent directors and share "certain confidential information" with that investor, Elliott Investment Management, as part of an agreement between the company and the investment firm.

Best known for beers like Corona and Modelo, Constellation, in a statement on Tuesday, described Elliott as one of its "largest investors." Bloomberg, citing people familiar with the matter, said Elliott had been in private talks with the alcohol company for months and was one of its 10 biggest shareholders.

Under that agreement, Constellation added two new slots to its board -- expanding its total size to 13 members -- to appoint William T. Giles, the former chief financial officer of AutoZone Inc. (AZO) and Luca Zaramella, the CFO of Oreo maker Mondelez International (MDLZ).

The terms for both members will expire at Constellation's 2024 annual shareholder meeting. Over that time, Constellation has agreed to limit the size of its board to 13 members.

However, the board still has the option to add one more in order to appoint someone who "meets certain independence requirements and is also a current or former chief executive officer of a publicly-traded company," according to a filing. The agreement, Deutsche Bank analysts said, prevents Elliott from launching new campaigns against Constellation.

"Overall, we view these new developments as a furtherance of the steps STZ hasbeen taking since last year to improve its corporate governance profile andtransition away from its history as a family-controlled company," the Deutsche Bank analysts wrote in a research note on Wednesday.

"We view the board additions favorably (and we believe the market will agree), seeing each member as having a good reputation, with sizable public company operations, strategic planning, and capital prioritization/allocation experience," they continued.

This month, Constellation said that Rob Sands, the company's onetime chief executive, would retire from his role as the company's board chair after the company's annual shareholder meeting, which took place on Wednesday. Earlier in the month, Morgan Stanley analysts noted on Wednesday, Constellation also said that a family investment vehicle had also backed away from board matters. Last year, the Sands family took steps to relinquish their voting power at the company.

Morgan Stanley analyst Dara Mohsenian, in a note to clients, said the deal with Elliott would improve Constellation's governance and "should reduce STZ's negative capital allocation overhang, and allow the market to focus more on the robust and rebounding growth profile for its beer business, as well as narrow the discount to which STZ trades relative to its topline growth potential."

Portfolio managers for Elliott on Tuesday also said they believed that Constellation's growth potential, backed by its popular Mexican beer brands, wasn't currently appreciated by investors.

Modelo Especial -- which Constellation is licensed to sell in the U.S. -- has overtaken Bud Light as the top-selling beer in the U.S., following the conservative-led boycott of Bud Light following its brief partnership with a trans gender influencer. However, Anheuser Busch InBev (ABI.BT), Bud Light's parent company, owns Grupo Modelo, which makes Modelo Especial and other beers.

Shares of Constellation Brands are up around 18% so far this year. By comparison, the S&P 500 Index is up 19.4% over that period.

-Bill Peters

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07-19-23 1435ET

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