Update - US: Fortune Brands silent on break-up talks
Pernod Ricard, Diageo among potential suitors for Beam Global Spirits & Wine - analysts
Fortune Brands has declined to comment on whether it has held talks with activist shareholder Bill Ackman on splitting and selling the group's spirits, golf and home businesses.
Ackman is pressuring Fortune Brands to break up its businesses, according to a report first published in the New York Post late last week. Fortune's share price rose by 8% on Friday, but slipped back by almost 2% in early trading today (15 November).
Ackman's investment vehicle, Pershing Square Capital Management, said in a stock filing in early October that it has acquired an 11% stake in Fortune, which owns Beam Global Spirits & Wine. Ackman has a reputation for acquiring shares in companies in order to pressure executives to extract more value for shareholders. Once achieved, the shareholding can be sold on for a higher price.
Fortune executives have reportedly held discussions with Pershing Square Capital on selling the business and the Wall Street Journal reported over the weekend that the meetings have been "constructive".
A spokesperson for Fortune declined to comment on whether talks have taken place when contacted by just-drinks. But, he added: "As we’ve said many times, we’re always open to constructive dialogue with our shareholders but we don’t discuss the specifics of these interactions."
Analysts have previously questioned the long-term viability of holding together golf, home hardware and spirits businesses such as Fortune's. Its sales, particularly in the golf and home divisions, have taken big hits in the US recession and analysts do not expect sales or earnings to surpass 2008 levels until next year at the earliest.
Several rivals would be expected to show interest in Beam Global should a break-up take place. "With a 7% share (by value) of the US spirits market, we believe a number of spirits companies would be interested in Fortune's assets," said analyst group Evolution Securities in a note today.
The likes of Diageo, Pernod Ricard and Bacardi are all considered potential suitors for Beam Global, which includes Jim Beam and Maker's Mark Bourbon, Sauza Tequila and Courvoisier Cognac. Beam Global is estimated to be worth $2.5bn, but it is thought unlikely that competition authorities would allow one big player to sweep up the whole portfolio.
"We believe Diageo may either try to cherry pick brands in any break-up, eg Jim Beam (the global number two Bourbon brand) and Maker's Mark, or seek to acquire the business in combination with another player (eg private equity/Bacardi/Pernod Ricard) and then split the assets," said Evolution. It added that Beam Global might provide Pernod with a "last chance to bulk up its US offering".
Diageo and Pernod Ricard declined to comment when contacted by just-drinks. Bacardi could not be immediately reached for comment. The firm told just-drinks on Friday that it is "open-minded" on acquisitions in general, in response to speculation that it is seeking to acquisitions in India.
Fortune's earnings have been under pressure during the economic downturn and the group missed analysts' consensus estimates for the third quarter of 2010. Net profits fell by 17% for the three months, while charges dragged Beam Global's operating profits down by 19% for the quarter.
Zacks Investment Research said in a note on Fortune in August this year: "A sluggish discretionary spending environment, intense competition and exposure to adverse currency fluctuations undermine the company s growth prospects. This leaves limited space for above-market performance of the company."
However, Fortune's CEO, Bruce Carbonari, has remained optimistic. Last month, he reaffirmed the group's full-year earnings target range of between $2.60 and 2.90 in diluted earnings per share before charges/gains, versus $2.43 in 2009.
He said of Beam Global: "In spirits, new products and successful strategic investments are fuelling momentum in the US as we see the positive impact of recent initiatives. We’re also making progress in challenging global markets and growing strongly in priority emerging markets.”
Fortune's net debt fell by $261m in 2009 to $4.5bn at the end of the year and is expected to fall further in 2010.
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