Constellation Brands has had a summer full of impressive achievements. Not only did its Modelo Especial beverage become the top-selling beer in the U.S., but the company also caught the attention of activist investor Elliott Management.
Despite being a major player in the beverage and culture markets, Constellation’s need for an activist investor may come as a surprise. Elliott, known for its aggressive approach, has taken an interest in Constellation for a reason. Although Modelo Especial’s rise to the top came after Anheuser-Busch InBev’s Bud Light stumbled in its marketing efforts, Constellation hasn’t been without its own missteps.
Last year, the company suffered a $1.1 billion write-down on its investment in cannabis company Canopy Growth, which it had acquired for $4 billion back in 2018. In an effort to improve its corporate governance, Constellation recently eliminated its supervoting Class B shares, thereby relinquishing the tight control held by the company’s founding family. While Constellation’s beer sales are booming, its margins have been a disappointment. Morgan Stanley analyst Dara Mohsenian, who rates the stock as Overweight with a $290 price target, expressed concern over this issue.
As part of their agreement with Elliott, Constellation has also appointed two new independent directors. These changes have resulted in a 5% increase in the company’s shares this week.
Mohsenian believes that Elliot’s involvement could help narrow Constellation’s valuation discount and potentially attract investors who have been hesitant due to the company’s previous capital allocation concerns.
