The Federal Trade Commission (FTC) announced today that Constellation brands (STZ 0.35%) must divest certain assets in order to purchase the private winery E&J Gallo. This is the second round of changes requested by the regulatory body.
The agreement, originally announced in April of 2019, was revised to ease FTC concerns and subsequently resubmitted five months later. The deal changes didn't go far enough, as more tweaks were requested this week. The FTC remains concerned over the large market share a combined conglomerate will have in wine. CEO Bill Newlands thinks the changes asked for this week simply bring the two companies one step closer to closing their deal.
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Divestitures required
As part of FTC requests, Constellation must now part ways with a portion of its wine and spirits portfolio to ease antitrust concerns. Furthermore, Constellation-owned facilities in California, New York and Washington all must be sold as a new FTC pre-requisite for the Gallo purchase.
Beyond demanded divestitures, Constellation brands plans to voluntarily divest Gallo's Nobilo Wine brand should the deal pass. This is expected to fetch $130 million in proceeds.
Importantly for stakeholders, the requested changes will not prevent the combined entity from realizing its desired champagne production levels. This was the main concern looming over executives from both companies.
The deal price is expected to be for 1.03 billion dollars. If the FTC is satisfied with new deal amendments, E&J Gallo is expected to become part of the Constellation brands umbrella in fiscal Q2 of 2021; there is no guarantee that will happen.
