Corporate Finance Assignment

This assignment conducts a financial evaluation of Mondavi and Constellation Company, analyzing their operations and determining their financial viability. It discusses the merger between the two companies and highlights issues in management and operations. The assignment also explores strategies for improving the business activity and potential value of Robert Mondavi.

Running head: CORPORATE FINANCE ASSIGNMENT
Corporate Finance
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Executive Summary
The aim of the assignment is to conduct a financial evaluation for the assignment by taking the
analysis of the operations of the Mondavi and Constellation Company operating as wine
manufacturing company. The assignment takes various factors like the management,
profitability, macro-economic factors and business factors for determining the financial viability
of the business. Issues in contrast to the management of the company and operations of the
company were some of the actions that were highlighted and discussed in the assignment.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Analysis of the Strategic Position of two Companies.................................................................3
Valuation and Potential of Robert Mondavi................................................................................8
Success Levels...........................................................................................................................11
Conclusion.....................................................................................................................................11
References......................................................................................................................................13
Appendix........................................................................................................................................15

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Introduction
Constellation Brands, Inc. (NYSE: STZ) (ASX: CBR), is a leading international producer
operating in the beverage alcohol industry. The Robert Mondavi winery was incorporated in
1966 in Napa Valley, California. The portfolio of the Constellation Brand has been producing a
wide range of wines in the United States, which has given the company the ability to compete
with various brands operating the European Union. The company has undertaken various global
acquisitions and increased business activity thereby increasing the business opportunities for the
company both based on organic growth and inorganic growth for the company (Santos and
Richman 2016).
Discussion
Analysis of the Strategic Position of two Companies
The Constellation Brands and Robert Mondavi announced the merger whereby the
Constellation Company will be acquiring the whole of the Mondavi Corporation. The Mondavi
Corporation and Constellation Brand will be going for a merger action (Martone 2016). The

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acquisition between the two companies was performed in the year 2003, whereby the
Constellation Company offered an all-around value of $970 million in contrast to the market
value of the company to be around $860 million for the company. Constellation offered an all-
around outstanding per share of $56.60 per share for the Class A common Stock of Mondavi and
around $65.82 per share in cash for Mondavi Class B common stock (Ransbotham 2015). The
approximate amount that will be paid by the company will be paid for the overall equity value
and debt value of the company. It is seen that the merger or the business combination between
the two giant beverage companies will not only increase the ability of the company but will also
increase the market share and the customer base for the company. Bringing of complimentary
wine assets, including vineyards, production facilities and the distribution facilities for the
company will be increased which will increase the operational activity of the company. The
successful merger will be beneficial for the Constellation Company, as the company will be
offering various products in the field of various products in the field of wines (Ransbotham
2015).

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The Robert Mondavi Company from the business operational view has been performing
well but on the view of management performance, there has been several issues that were faced
by the company. Issues with the managers and the owners of the company and dispute in regard
to the strategy followed by the company which was not in the best interest of the shareholders of
the company has been the key reason why the share price of the company has degraded
consistently for the company. There are various strategies and actions, which the management of
the company should consider for the purpose of the increasing the business activity of the
company, but the same were not well addressed by the management of the company
(McAtemney 2018). The strategy that was followed by the company distributing the operating
segment of the company into premium wines and normal wines was not considered well driven
by the company. The rationale followed by the company in contrast to the strategy of the
company were not well undertaken by the investors and shareholders of the company. The
Constellation Brands, owns a brand portfolio whereby the company offers various kinds of
spirits like beer, wine and other alcoholic spirits. The Mondavi Family which owns about 85% of
the shares of the company in actual oversees the various operations of the company (Bahadir
2015).
Both the companies Constellation and Robert Mondavi Corporation are innovative
energetic company, which are growing on a solid base and one a combined basis the companies
have a total of 100 Years of experience which makes the intrinsic value of the company to be
high. It is to be noted that valuation of the company would be based on various factors and
operations of the company. It is expected that based on a strategy viewpoint the company on a
jointly basis would be increasing the overall valuation for the company. Better Management of
the resources, employees, and financial resources will be the key benefit of joint merger between

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these companies. While considering the market share in America the Constellation Brands has a
market share of 12.80% which is the second highest market shareholder in the Wine Unit Sales
for the company.
Considering the operations and the financial performance of the Constellation Company
has been growing at a stable rate and the financial position of the company has been stable. The
operations of the company on an individual basis needs to be improvised but there are other
several actions and plans that the company need to adopt for the purpose of expansion or
increasing the market penetration of the various products and services of the company. The
operations and the business of the company can be grown wither through investment in better
technology, plant and machinery and various other noncurrent assets of the company thereby
increasing the production level, efficiency and utilisation of the various kinds of resources that is
taken by the company (Hira 2015). The other strategic ways which can be done by the company
is considering the option for buying out companies operating in the similar industry whose assets
or business combination can increase the market share of the company and the customer base of
the company on an overall basis. It is in accordance with the strategy taken by the management

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of the company for the purpose of the identification and utilisation of the various kinds of
resources undertaken by the management of the company.
Identification of the well business group company in terms of operations and capability
of the company for carrying on various operational work is the key functional area that needs to
be well identified and to be taken into consideration for the purpose of analysing the same. The
same can be well treated with the help of a similar company which has been identified by the
Constellation company which has strong operations but due to the inadequate strategy and
actions taken by the management of the company for improving the level of operations of the
company the company’s performance has been degrading due to this. Sustainability in the
business operations, profitability in the financials of the company and growth of the various
operational work for the company are some of the key points which are closely related with the
strategies and actions taken by the management of the company.

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The Mondavi Company existence in the business and performance has been stable but
due to the inefficiencies of the management in terms of timing of the activities of the company.
The various other activities of the company in terms of management of resources has been poor,
which degraded the overall business condition. The Constellation Company identified the base
company as the best possible opportunity for the purpose of buyout in which the management of
the company will be removed and the acquiring company will be bringing down a new team of
management who will be overlooking the operations and taking necessary steps for the purpose
of identifying and correcting the same.
Valuation and Potential of Robert Mondavi
The valuation for the company will be done on the basis of the value paid by the
acquiring company or by identifying the fair value of the assets and liabilities of the company.
Since the balance sheet of the company has a variety of assets which are reported at historical,
amortisation or fair value costing it becomes important for the acquiring company to actually
identify the fair value of the company in terms of the asset and liabilities owned by the company.
It is necessary that the purchase considerations paid by the company in terms of cash offering or
equity should be at an adequate rate (Braun, Latham and Porschitz 2016).
The potential value of the Robert Mondavi can only be recognised when the management
of the Constellation Brands deploy strategies and management techniques which are not only
helpful in tackling the business problems faced by the company but also creating various other
business opportunity growth factors for the company (Rani, Yadav and Jain 2015). On a joint
basis the Robert Mondavi Company will be creating value for the company in various possible
ways:

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Widespread Distribution of Portfolio Products: The widespread distribution of the product
portfolio of the company in the field of the various wines, spirits and other alcoholic beverages
on a joint basis will allow the company offer various category of products. Competition in the
market would become slightly low when the joint company offers a wide arrange of products.
Better Utilisation of Resources: Financial and economic resources of a company needs to be
well identified and taken into consideration for the purpose of the increasing optimum utilisation
of resources. There are various factors and ways in which the company can increase the
production of the company and the same can be with the help of the technological development,
better usage of devices and machinery involved (Rao and Reddy 2015).
Technology and Asset Used: On a joint usage the assets of the company can be together used
by the company for the purpose of carrying on various activities of the company. Technological

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advancement can bring out strong growth in the company in the form of better and effective
management of resources for the company (Rao‐Nicholson and Salaber 2016).
Management Turnaround: The management of a company lays out an efficient point in
managing and strategizing the overall working condition for the company. Management of the
company will be acting in accordance with the current business condition and make up
appropriate plan for improvising the same.
Value: The value offered by the Constellation Company for the Mondavi Brands was around
$970 although the fair market value of the company being $860 million. The extra value paid by
the company will be added up in the form of goodwill that is paid by the company. Around $110
million was paid by the company in the form of goodwill which will be recovered with the help
of the changes that will be brought in the management of the company.
Goodwill Calculation:
Paid Consideration = $970 million (Purchase Considerations)
Fair Market Value = $860 million (Identifiable value of all Assets and Liabilities)
Goodwill = ($970-$860) MN = 110 Million.
Purchase Consideration
In terms of purchasing the Mondavi Brand the Constellation Brand will be acquiring the
company and paying the same with the best option payable. The payment of the consideration
can either be made in the form of cash, debt or equity. However it is crucial to note that all of the
above features have their own benefits in terms of risk and return benefit.
Cash Buyout: Cash Buyout is generally considered when the management of the company is
fully confident about the various activities undergoing in the target company and the successful

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merger of the company will be definitely bringing out some great value for the shareholders of
the company (Chen et al., 2016).
Debt Financing: Debt financing can be done by the company when the management of the
company is confident that as soon as the merger or business consolidation is done there will be
high value creation for the acquiring company. It is not recommended that the Constellation
Brand goes for this option where the business risk of the target company is high and any further
changes in the financial structure of the company may also increase the financial risk of the
company this in turn may increase the overall risk of the company.
Equity Financing: Financing the purchase considerations with the help of the equity share
capital is recommended due to the higher risks involved in the company. The high risk will also
be in the form of higher expected rate of return which is suitable for the company in this case
keeping the overall business consolidation risk at a very low levels.
The management of the company can also go for a mix source of financing like 60%
equity financing method and 40% cash payout whereby the capital structure of the company
itself will be diversified with the varying financing sources.
Success Levels
The success level for the companies can be in the form of better management of financial
and economic resources between the companies and effective utilization of resources.
Widespread product portfolio of the company and better assets and inventory which can bring
about an turnaround in the company will be the key factors under which the company will be
operating. The threats of the company can be in the form of slow sales for the company, higher
operational costs and consistent fall in the operational and revenue of the company (Kispál and
Takács 2016).

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Conclusion
The assignment was conducted by doing a financial evaluation for the assignment by
taking the analysis of the operations of the Mondavi and Constellation Company operating as
wine manufacturing company. It was found that the successful merger will be beneficial for the
Constellation Company, as the company will be offering various products in the field of various
products in the field of wines. Financial viability of the business with the help of various
business and macro-economic factors were some of the actions that were taken into
consideration for the purpose of analysis.

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References
Bahadir, S.C., 2015. Hidden Value of Brands: Brands in Mergers and Acquisitions. The Future
of Branding, p.420.
Braun, M., Latham, S. and Porschitz, E., 2016. All together now: strategy mapping for family
businesses. Journal of Business Strategy, 37(1), pp.3-10.
Chen, K.C., Cheng, Q., Lin, Y.C., Lin, Y.C. and Xiao, X., 2016. Financial reporting quality of
Chinese reverse merger firms: The reverse merger effect or the weak country effect?. The
Accounting Review, 91(5), pp.1363-1390.
Hira, A., 2015. From Industrial Strength to World Class: Gallo and Mondavi's Contributions to
the California Wine Industry. CALIF HIST, 92(4), pp.48-72.
Kispál, G. and Takács, I., 2016. Winery corporations in Europe and in the world. Roczniki
Naukowe Stowarzyszenia Ekonomistów Rolnictwa i Agrobiznesu, 18(3).
Martone, E., 2016. WINERIES, ITALIAN AMERICAN. Italian Americans: The History and
Culture of a People, p.141.
McAtemney, P., 2018. Chardonnay the champion: Is innovation the key to extending the reach of
the locally produced wine style?. Australian and New Zealand Grapegrower and Winemaker,
(651), p.78.
Rani, N., Yadav, S.S. and Jain, P.K., 2015. Financial performance analysis of mergers and
acquisitions: evidence from India. International Journal of Commerce and Management, 25(4),
pp.402-423.
Ransbotham, S., 2015. Telling Datas Story With Graphics. MIT Sloan Management
Review, 57(1).

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Rao, N.V. and Reddy, K.S., 2015. The impact of the global financial crisis on cross-border
mergers and acquisitions: a continental and industry analysis. Eurasian Business Review, 5(2),
pp.309-341.
Rao‐Nicholson, R. and Salaber, J., 2016. Impact of the financial crisis on cross‐border mergers
and acquisitions and concentration in the global banking industry. Thunderbird international
business review, 58(2), pp.161-173.
Reddy, K.S., 2015. The state of case study approach in mergers and acquisitions literature: A
bibliometric analysis. Future Business Journal, 1(1-2), pp.13-34.
Santos, M.R. and Richman, V., 2016. FINANCIAL RATIO AND VALUATION ANALYSES
OF CONSTELLATION BRANDS INC.: A CASE STUDY. Strategic Winery Tourism and
Management: Building Competitive Winery Tourism and Winery Management Strategy, p.247.

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Appendix