The Sands family, the largest shareholder of Constellation Brands stock, has proposed declassifying the company’s common stock and transitioning to a single-class common stock structure.
Over the weekend, Constellation Brands chairman Rob Sands wrote a letter to the company indicating his family’s willingness to convert their Class B shares, of which the family owns 98%, to Class A shares. The move, if accepted, would reduce the Sands family’s voting control from 59.5% to just under 20%.
If the proposal was approved, the Sands family would remain the largest shareholder of Constellation stock. In a press release, Constellation, whose portfolio includes popular Mexican import brands Corona, Modelo and Pacifico, clarified that “the proposal was not made in connection with any other corporate transaction.
Constellation’s Board of Directors has established a special committee tasked with evaluating the proposal and potentially approving it. Constellation’s board would also need to sign off on the proposal. Additionally, a majority of Class A shareholders that do not also own Class B stock would have to agree to the move, according to the company.
Wall Street Analyst Reactions
Analysts from Cowen and Goldman Sachs were largely positive about the potential change.
Cowen managing director Vivien Azer wrote that the change would alleviate some of the “frustrations” from investors who say Constellation “is not truly a public company, given” the Sands’ control.
“Today’s announcement suggests a willingness to evolve the control of the company to public shareholders, and should de-risk STZ’s multiple, which has been depressed on M&A speculation and frustration at the lack of investor influence on capital allocation decisions,” she wrote, referencing rumored-but-thus-far-unfounded talks between Constellation and energy drink maker Monster.
Azer added that the proposal “should be well-received as it puts far more control with public shareholders, and would allow for a more shareholder-friendly approach to capital allocation decisions.”
Goldman Sachs managing director Bonnie Herzog also called the proposal “a positive catalyst for stock as it removes a key overhang,” and has the potential to attract additional investors “who prefer single-class structures” and “increase investor comfort in STZ’s capital allocation plan.”
“We note, given the Sands family voting control would be reduced their support would not be required for a potential MNST/STZ deal, which we continue to believe is unlikely given the deal would have limited value creation,” she added.
Nuts and Bolts of the Proposal
Each share of Class B common stock would be converted into 1.35 shares of Class A common stock, under the proposal. The company said the proposal offers “significant benefits that would accrue to the Company and our stockholders,” including by “increas[ing] market demand from investors who prefer single-class structures.”