Constellation Sells Canadian Wineries

Company announces purchase of five brands from Charles Smith the same day

by Peter Mitham
wine constellation ontario inniskillin ice
Inniskillin Wines property and vineyards in Ontario and British Columbia are included in Constellation's sale to the Ontario Teachers' Pension Plan.

Toronto, Ontario—The pensions of Ontario’s teachers will benefit from sales of some of Canada’s best-known wines, following the announcement that their pension manager has agreed to acquire Constellation Brands Inc.’s 5 million-case Canadian division.

Ontario Teachers’ Pension Plan (OTPP) will acquire Constellation Brands Canada in a $760 million deal ($1 billion Canadian) set to close by the end of the year. The purchase gives OTPP the business formerly known as Vincor Canada, in which it was an investor until selling its stake in 1996.

“We’re quite familiar with the company, with the brands, and with the wineries,” said Deborah Allen, vice president of communications for OTPP. “When we heard that it was coming onto the market, we were very interested.”

Wineries acquired as part of the transaction include the Jackson-Triggs and Inniskillin properties in Ontario and British Columbia, as well as vineyard holdings in both regions.

Constellation Brands Canada will become part of Ontario Teachers’ growing consumer products division, which is part of its private capital portfolio that accounts for 46% of the plan’s total holdings of approximately $128 billion ($168.2 billion Canadian).

Consumer products provide an ongoing stream of revenue to plan members, which make them attractive. Other holdings include stakes in senior housing, parking lots, biscuit makers, beverage containers and mattresses. OTPP has a stake in Flynn Restaurant Group, the country’s largest franchisee with 470 Applebee’s and 170 Taco Bell locations in 27 states.

OTPP’s portfolio has seen its Canadian equities holdings decline during the past year, making the Constellation purchase an important, fresh investment in the category.

“We see it as a great opportunity for growth. The brands themselves—the wineries, the industry—it is a growth industry. We don’t buy things to just hold static. We buy to grow.”

The acquisition is the sole wine-related holding in OTTP’s portfolio, Allen said, declining to speculate on future additions in the area of wine and spirits. Typically, investment decisions are made according to the risk and liquidity a sector offers. In this case, the wine business fit the bill.

Buying brands
Constellation, for its part, has made a fresh investment in the wine industry.

The announcement of its divestment in Canada coincided with news that it’s purchasing five brands from vintner Charles Smith in Washington state, where it also owns 540,000-case Hogue Cellars. Brands acquired include Kung Fu Girl Riesling, Eve Chardonnay, Boom Boom Syrah, Velvet Devil Merlot and Chateau Smith Cabernet Sauvignon.

Constellation executive vice president Bill Newlands, who oversees the company’s wine and spirits business, was unavailable to speak with Wines & Vines, but a company statement framed the deal as part of the company’s “focus on high-margin, high-growth brands.”

“With this acquisition, Constellation Brands will solidify its position as the second leading supplier of Washington state wines, gaining a collection of high-quality wines that have strong consumer affinity and demand, and have shown double-digit volume growth over the last three years,” the statement read.

The $120 million deal will change little for Smith, who said he’ll continue to make wine for the brands Constellation acquired.

“I still retain after this transaction, minus the corporate portfolio of Charles Smith Wines, north of 400,000 cases of wine per year,” he said. “We’re going to continue to be very busy.”

Smith will bank proceeds from the deal, while the five brands will have a chance to reach their potential—something Smith’s small staff of seven couldn’t achieve alone. With year-over-year growth of 50%, the wines will now be in the hands of Constellation’s 400-odd salespeople.

The move echoes, on a much larger scale, what Smith and partner Charles Bieler did early in 2013, when they handed sales and marketing of their Charles & Charles label to Trinchero Family Estates, freeing up time to pursue new initiatives (see “Charles Smith Positioned for Growth”). “I sold simply because I think it was the best opportunity for Charles Smith Wines,” Smith told Wines & Vines. “If I can sell over 400,000 cases of Charles Smith Wines with seven people, what can Constellation do?”

Smith personally expects sales of the five brands to double, which will be good not only for the growers supplying grapes, but also the hundreds of smaller producers.

“It’s good news for the grapegrowers, and how about all the small brands whose style, combined, represents all that Washington wine truly is?” he said. This “really is a boon for Washington, simply because there’s more big players at hand that can help define what Washington wine truly is and get it in the hands of wine drinkers throughout the world.”

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