Constellation pulls brands from E. & J. Gallo deal, price lowered by $600 million

FILE PHOTO: Corona beers are pictured at a BevMo! store ahead of Constellation Brands Inc company results in Pasadena, California U.S., October 4, 2016. REUTERS/Mario Anzuoni

(Reuters) - Constellation Brands Inc STZ.N said on Thursday it had withdrawn some brands, including Cook's California, from its deal with E. & J. Gallo Winery after regulatory concerns, reducing the deal value by about $600 million.

The deal price has now been revised down to about $1.1 billion, of which $250 million is an earnout based on divested brands’ performance over a two-year period, Constellation said.

In April, Constellation agreed to divest its wine brands retailing at less than $11 a bottle such as Clos du Bois, Ravenswood and Mark West, to better focus on its more profitable, high-end wines.

After the U.S. Federal Trade Commission raised concerns related to sparkling wine, brandy, dessert wine, and concentrate categories, Constellation said it had pulled Cook’s California, J. Roget American Champagne brands and Paul Masson Grande Amber Brandy from the deal.

“We continue to focus our total portfolio to align with consumer-led premiumization trends and growing segments of the market,” the brewer’s Chief Executive Officer Bill Newlands said.

The brewer said on Thursday it would also divest its New Zealand-based Nobilo Wine brand for $130 million to E. & J. Gallo.

The deal is expected to close by the end of fiscal 2020, while the transaction for Nobilo Wines in the first half of fiscal 2021 and is subject to FTC and New Zealand regulatory approval.

Reporting by Nivedita Balu in Bengaluru; Editing by Maju Samuel and Shinjini Ganguli