(Reuters) - Constellation Brands Inc will buy the remaining half of its Crown Imports joint venture for $1.85 billion to get full control of distributing popular beers like Corona Extra and Modelo Especial in the United States.
Constellation shares jumped nearly 23 percent to their highest level in years on the news. The deal to buy out Grupo Modelo gives Constellation control of the best-selling imported beer in the lucrative U.S. market.
"We think this is transformative and positive to Constellation," said Stifel Nicolaus analyst Mark Swartzberg. He raised his rating on Constellation shares to "buy."
Constellation said on Friday it was buying out its joint venture partner, Mexican brewer Modelo, which is being acquired by Anheuser-Busch InBev
Analysts said anti-trust concerns likely prompted the sale of the stake, as AB InBev already controls some 49 percent of the U.S. beer market with brands like Bud Light.
Constellation also reported slightly better-than-expected quarterly profit on Friday and stood by its full-year earnings outlook.
The maker of Robert Mondavi and Ravenswood wines also said it plans to buy the Mark West pinot noir wine brand for $160 million.
Constellation said it had fully-committed bridge financing in place to complete the Crown Imports acquisition, and expects the deal to boost its ongoing diluted earnings per share and free cash flow.
The agreement gives AB InBev the right, but not the obligation, to exercise a call option for 100 percent of Crown every 10 years at a multiple of 13 times Crown's operating earnings from the Modelo brands.
EARNINGS POTENTIAL
Constellation said it earned $72 million in its fiscal first quarter, ended May 31, down from $74.5 million a year earlier. On a per-share basis, earnings rose to 38 cents from 35 cents a year earlier, when there were more shares outstanding.
Excluding one-time items, Constellation earned 40 cents per share. On that basis, analysts on average were expecting 39 cents, according to Thomson Reuters I/B/E/S.
Net sales slipped to $634.8 million from $635.3 million.
Crown Imports contributed $215 million in equity earnings to the company in fiscal 2012, Constellation said in a statement. In an interview, Chief Executive Rob Sands said owning the whole business will improve his company's earnings potential moving forward.
The company also suspended its current share buyback program as it pays down debt from the deal.
The deal is expected to close during the first quarter of 2013, which is the last quarter of Constellation's fiscal year. That is why Constellation did not update its earnings outlook, but said it still expects 2013 earnings of $1.93 to $2.03 per share, excluding one-time items.
Constellation shares rose $4.69, or 21.6 percent, to $26.45 in morning trade on the New York Stock Exchange.
(Reporting by Martinne Geller in New York; Additional reporting by Balaji Sridharan in Bangalore; editing by Jane Merriman, Jeffrey Benkoe and John Wallace)