Beam Inc stands alone, but for how long?

Beam Inc stands alone, but for how long?

Beam Inc has begun life as a standalone spirits company, but many analysts believe that it is a case of when, not if, the Jim Beam Bourbon producer is bought. 

Fortune Brands said today (4 October) that it will henceforth be known as Beam Inc after completing the spin-off its home and security division. The move leaves new-look Beam as a pure-play spirits company, yet speculation is growing as to how long the group can last in an industry thirsty for consolidation.

Many analysts believe that a buyout is inevitable at some stage, but some think that Beam has breathing space in the short-term. "I agree that it's a case of when, not if, but that could be a year or two away," Sanford Bernstein analyst Trevor Stirling told just-drinks today (4 October). 

Both Diageo and Pernod Ricard have been linked to Beam, but neither has appeared in any rush to make a move. In August, Diageo's CEO, Paul Walsh, told just-drinks that he doesn't expect the company's lack of presence in Bourbon to change "in the near future". Pernod, meanwhile, has said its main focus remains cutting debt

Competition law in the US and Europe, together with the breadth of Beam's portfolio, makes it unlikely that one player could swallow the entire group on its own. Diageo and Bacardi have been touted as a likely bidding duo. However, Bernstein's Stirling said that Diageo "needs to decide whether it wants Jose Cuervo first". The drinks giant has a global distribution agreement on Cuervo until 2013. What happens with Cuervo could affect what Diageo wants from Beam, which owns rival Tequila brand Sauza.

"Without Diageo or Pernod," said Stirling, "it becomes harder because other players will need to cobble together a complex coalition." Beam's implied stock market value was around US$6.7bn at the start of today, while analyst estimates suggest the group could be sold for around $9bn.

Rabobank's executive director of food and agribusiness research, Stephen Rannekleiv, said that Beam is believed to be carrying tax liabilities that could deter potential suitors for up to a year. It is not yet known how much tax these liabilities amount to.

"But, even beyond the tax issues," Rannekleiv said, "I think that if you are Beam, you don’t want to have a bidding process start before you know Pernod is in a position to make a bid, and they will likely need to pay down some debt first."   

Beam's CEO and president, Matt Shattock, said today that "Beam begins its future as a pure-play spirits company with strong momentum and compelling growth prospects". He said that the group is well-placed for long-term growth.

Rannekleiv, though, sees a game of cat-and-mouse emerging. "It's a dance. Everyone's playing hard to get, but at the end of the day somebody's going to get it."