United States: Modelo’s lawsuit lacks merit – Constellation Brands

The lawsuit filed this week in New York federal court by Mexican brewer Grupo Modelo against its indirect subsidiary Constellation Brands Inc. lacks merit, the latter’s representatives were quoted as saying by The Rochester Business Journal on December, 16.

Constellation said it will defend its position and noted the Victor firm has not been formally served with a lawsuit.

Shares of the company dropped more nearly 6 percent on December, 16 to $15.28, down 89 cents from the close the day before.

Constellation and Grupo Modelo are partners in Crown Imports LLC, a 50/50 joint venture that started in January 2007. Crown's board of directors is comprised of four directors from each parent company. The initial term of the joint venture extends through 2016, Constellation said in a release.

According to published reports, Grupo Modelo filed the suit because of Constellation’s refusal to fund maketing spending by Crown Imports. Constellation contends the spending in question was previously provided by Grupo Modelo and was agreed upon once again for 2010.

The news led to a downgrade to hold from buy by Stifel, Nicolaus & Co. Inc. who noted that the ratings change is not an expectation of material damages and/or compensation for Constellation, but the suit implies, among other things, “that suing one's business partner is generally a bad precedent for ongoing business relations.”

18 December, 2009