Constellation Buying Svedka vodka

Pays big price for hot brand.

Constellation Brands today announced it was buying the fast-growing Svedka vodka brand for $384 million.

The deal gives Constellation a solid entry in the vodka segment, the fastest-growing part of the spirits business. It also gives Constellation a bigger presence in the premium part of the market. And Svedka, owned by Guillaume Cuvelier and Belgium-based Alcofinance SA, has grown at a torrid rate: It moved 1.1 million cases in 2006, up 60 percent from 2005.

But as Morgan Stanley analyst Bill Pecoriello notes, while the deal “makes strategic sense” it comes with a price. The deal will be dilutive for three years.

Wrote Mark Swartzberg: “On its face, three years of EPS dilution is not value creation, but the Svedka brand is on a strong, multi-year trend of growth, and Constellation emphasized its intention to plow profits back into the brand for the sake of future growth.”

The deal underscores the fact that the cost of acquiring premium spirits brands -- following Bacardi Ltd.’s $2 billion acquisition of Grey Goose a few years back -- is steep. The upcoming sale of Absolut by Sweden’s Vin & Spirit could set another benchmark. Anheuser-Busch is rumored to have an interest in that brand.

UBS analyst Kaumil Gajrawala notes:

We believe the acquisition of Sweden-produced Svedka, makes it less likely at this stage that (Constellation) would also look to acquire Swedish-produced Absolut vodka.

Constellation markets a variety of wine and spirits brands and, with Grupo Modelo, is a participant in Crown Imports, which markets Corona Extra and other Modelo brands in the U.S.

The Constellation release can be seen here.