Moments ago, the Department of Justice filed suit in Federal Court to block Anheuser-Busch InBev's (ABI) purchase of Grupo Modelo. Constellation Brands (STZ) has moved precipitously lower on the news.
We view the decision to go to litigation as part of the dance, although admittedly an aggressive move. While aggressive, it is certainly not the end of the process. For some perspective, the DOJ also filed suit to block ABI’s purchase of BUD. It isn’t an uncommon step in the more contentious mergers, but while this certainly represents a delay in the closing of the transaction (no longer Q1), it does not mean that the transaction will not close.
The parties will now move to litigation or, alternatively, additional concessions can be made by ABI to satisfy the concerns expressed by the DOJ in the complaint.
Our view remains consistent – this transaction represents significant value to ABI, and therefore we believe that additional concessions are very likely.
While the move down is painful, we continue to see substantial value to Constellation Brands should the transaction close, an event that we continue to see as likely, though delayed.
Call with questions. Email me if you'd like a copy of the complaint.
HEDGEYE RISK MANAGEMENT, LLC