Why did Constellation sell Gaymers?

C&C Group announced its £45 million acquisition of Constellation’s Gaymer Cider Company on Monday this week. It’s a move that will boost the cider portfolio for the Magners maker as well as its UK presence – particularly in the growing off-trade sector. 

Constellation has however lost a successful and profitable cider business. What was its motivation for selling?

It has been suggested that Constellation may be gradually reducing its presence in the UK market. The multinational company has already sold a 50% stake in its British wholesale business, Matthew Clark to Punch Taverns; the Strathmore water brand to A G Barr, and now Gaymers to C&C. 

As for why the US-headquartered company might want to decrease its presence in Britain, Constellation Europe CEO Troy Christensen has said on several occasions that if the British government pursues its policy of increasing duty on alcohol – which it has – he will consider pulling out of the market. 

Perhaps the UK is no longer profitable for the multinational company?

However, Constellation has invested in Britain. Most recently it has unveiled an 80,000m² wine warehouse in Avonmouth near Bristol. At a cost of just over £45m, the sale of Gaymers will almost cover this outlay. 

It has also put a hefty marketing spend behind Hardys, sponsoring TV programme Come Dine With Me, while in April 2006, when Constellation bought Canadian company Vincor, it also acquired Kumala – then the largest South African wine brand in the UK. 

By October 2007, it had bought Flagstone, another Cape brand – and also winery – that would further boost Constellation’s presence in the UK, South Africa’s largest export market for wine. 

It seems in fact that Constellation are not abandoning the UK market but specialising in terms of drinks category and price sector. The company wants to focus on higher margin brands, above all in wine. 

Hence, in January this year it shed over 40 mostly low-margin high volume spirits brands for US$344m. 

Prior to that, in 2008, the company sold inexpensive but high volume Almaden and Inglenook wine brands to Beam Global for $134m. 

As Stephen Glancey, COO at C&C Group, said at a press conference on Monday, following the announcement of the Gaymers deal, “It was well known in the trade that Constellation was looking to exit the cider and wholesaling business in the UK. Constellation wants to focus on the premium end of wines and spirits and Gaymers was surplus to its business model.”

It’s also a further sign of Constellation’s current stage in its development – it has moved from an aggressive acquisition strategy towards a focus on improving profitability, increasing efficiency, and paying down debt.

It is of course currently in negotiations with Australian Vintage over selling assets in return for a “substantial” stake in the Sydney-based company, which makes the McGuigan and Nepenthe wines, both of which have a solid sales base in the UK.

No doubt the new Avonmouth facility would make an attractive, highly efficient UK and European hub for both companies should a tie-up be agreed. 

Details of the C&C/Constellation deal:

• C&C Group will acquire Constellation Brands’ UK cider division, The Gaymer Cider Co, for £45m.

• The deal will see the Gaymers, Blackthorn and Olde English cider brands join Magners in C&C Group’s UK portfolio.

• C&C will also gain a cider production facility in Shepton Mallet, Somerset and a nearby distribution warehouse in Bristol.

• Gaymer Cider Co had net sales of £64m in the year to the end of February 2009, with volumes of 1.5m hectolitres (approximately twice that of Magners). The company employs 250 people.

• Around 80% of Gaymers cider sales by volume are through the off-trade in the UK.

• C&C Group said the deal should be complete by mid-January 2010.

• The transaction is not conditional upon clearance by the UK Office of Fair Trading but will be subject to review by the OFT. 

• Earlier this year, C&C Group bought the Tennent’s lager business from AB InBev in a deal worth £180m.

• C&C has identified £3m of cost and revenue synergy benefits from the deal.

Patrick Schmitt, 02.12.09