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Constellation Brands to buy brewery in Obregon, Mexico

DBR Staff Writer Published 01 November 2016

Constellation Brands said it will submit a proposal to the US Department of Justice to acquire a brewery operation from Grupo Modelo, a subsidiary of Anheuser-Busch InBev SA/NV, for $600m.

Located in Obregon, the brewery is expected to have a production capacity of four million hectoliters with minimal investment and optimization by Constellation upon closing.

With the acquisition in place, the drinks giant will phase the buildout of 10 million hectoliters at Mexicali. Half of that production capacity is expected to be achieved by December 2019 while the remaining capacity is planned to be in line with future growth.

Constellation Brands executive vice president and CFO David Klein said: "The magnitude of our long-term investments in Mexico largely remain the same. The revisions to our operating plans essentially represent an initial shift in spend to Obregon from Mexicali.

“This will result in an increase in our free cash flow estimate for fiscal 2017 to a range of $575 - $675m.”

As per Constellation Brands, the Obregon brewery acquisition would allow it to immediately procure functioning brewery capacity to help its high-end Mexican beer portfolio besides providing flexibility for its future innovations.

It will also make Constellation to detach from the interim supply agreement it has with Grupo Modelo, a subsidiary of Anheuser-Busch InBev.

The drinks company has revealed its Mexico beer expansion capital expenditures for the current year, allocating $650m for expanding Nava brewery and $125m for the Mexicali Brewery build.

Image: Constellation Brands headquartered in New York will acquire Mexico-based Obregon Brewery for $600m. Photo: courtesy of DanielPenfield and Wikipedia.