Constellation Manufacturers to promote Svedka vodka to Sazerac

Constellation Brands announced Tuesday it will sell its Svedka vodka brand to New Orleans-based spirits company Sazerac.

The transaction is expected to close in the coming months, Constellation said in a press release. It did not disclose the value of the deal.

“The actions we have taken over the past several years to reshape our wine and spirits portfolio support our efforts to accelerate the performance of that business,” said Constellation CEO Bill Newlands in the release. “This transaction is another step forward in seeking to ensure that our wine and spirits portfolio is optimized to succeed and to meet our growth objectives.”

Constellation’s wine and spirits business has been dragging on the company’s strong beer portfolio, which includes Modelo and Corona.

“We continue to face incremental category headwinds in our wine and spirits business, particularly in the lower-priced segments,” Newlands said on the company’s latest earnings call in October.

In the second quarter, the company’s wine and spirits shipments dropped 9.8% year over year, the company reported. Net sales and operating income for the segment fell 12% and 13%, respectively.

So far this year, wine and spirits has accounted for just 5% of Constellation’s volumes, but 17% of net sales. Of that, the large majority of new sales came from wine rather than spirits, with an 86% and 14% share, respectively.

Constellation acquired Svedka when it bought Spirits Marque One LLC for $384 million in 2007.

Sazerac, a privately-owned company, will add Svedka to a portfolio that includes Buffalo Trace bourbon, Fireball Cinnamon Whisky, Southern Comfort and many more global brands.

Constellation’s spirits portfolio will continue to own including High West Whiskey, Mi Campo Tequila and Casa Noble Tequila.

Though Constellation shares slid slightly in early trading, investors and analysts appeared to welcome the news.

“While the existing Wine division remains, the divestment of SVEDKA is a clear positive for the segment’s future growth prospects,” said Bernstein analyst Nadine Sarwat. “It also signals that management is willing to make tough decisions to evolve the business, another positive for corporate governance.”

Bernstein maintains a buy-equivalent rating on the stock and $325 price target on shares that currently trade around $237.

Bernstein called the news “a clear positive for Constellation,” saying the company’s wine and spirits weakness has dragged on the beer business.

Additional details around the transaction will be provided at the Morgan Stanley Global Consumer and Retail Conference on Dec. 3, the company said.