just Five Years Ago: Beam keeps powder dry after losing race for Absolut
It's been a lively five years for Beam Inc
It was five years ago this week that Beam Global Spirits & Wine – as Beam Inc was then known – started to come to terms with Pernod Ricard's last-minute grab of takeover target Vin & Sprit and the Absolut vodka brand at the end of March, 2008.
Speaking to just-drinks a couple of weeks after Pernod broke the bank to buy V&S - it paid US$8.88bn for the Swedish firm - Beam's then-CEO, Tom Flocco, said: “We have a lot of dry powder, as a result of not having chased the V&S opportunity. We have capital to invest in the business for the right opportunities, and we'll do that prudently.”
Looking back now, many would say that Beam dodged a bullet by stepping away from the table, but would note that the company is almost as much of a takeover target today as V&S was back then.
Shortly after the end of the race for Absolut, Flocco was in sanguine mood when he spoke to just-drinks. “Would we have preferred a different outcome?” he asked himself. “Yes.” But, like many others observed, “it's just a huge spread over what we thought the business was worth”, he noted.
Having sold off its US wine business to Constellation Brands for US$885m in 2007, Beam Global seemed poised to embark on a shopping spree to cement its spirits portfolio. But, rather than announce purchases, the first big announcement out of Illinois after the failure to snare Absolut concerned a brand the firm was not going to buy. With Pernod terminating its sales, distribution and marketing deal for the Stolichnaya vodka brand in favour of Absolut, Beam was considered a perfect fit for the Russian brand.
In September 2008, Beam's parent company, Fortune Brands, said that it had no plans to move for Stolichnaya. “Given … risks unique to the situation, we did not see a reasonable solution that would serve the interests of our shareholders and we terminated those talks,” said Fortune's CEO & president, Bruce Carbonari.
One final consequence of Beam's loss to Pernod was that the US company had to bid farewell to its joint distribution deal in the US with Vin & Sprit, Future Brands. At the same time, it had to redraw its global distribution venture, Maxxium, with remaining shareholder The Edrington Group after Vin & Sprit and Remy Cointreau both withdrew. Suddenly, Beam Global seemed like a smaller fish in the world's spirits pond.
Despite this, as one of Fortune Brands' three units – along with its home & security and golf businesses – Beam Global had a big brother it could call on to ward off any bullies.
So, Beam went about its business, buying up the odd brand here (Cruzan rum from Pernod in late-2008) and selling non-priority brands there (Kuemmerling bitters, Fuerst Bismarck korn/schnapps and Jacobi 1880 brandy went to Henkell & Co in 2010). All the while, Beam had Fortune on its side.
Then, at the end of 2010, the ground beneath the unit's feet started to shake. Fortune's decision to split its three business units and focus solely on Beam Global may have been forced on it by 'activist' shareholder Bill Ackman, but Beam was now 'in play' like it hadn't been before.
Overnight, the speculation started, with observers – just-drinks' editor included – wondering who was on the starting line to buy Beam. The usual suspects, along with some less likely ones, all got a mention: Diageo, Bacardi, William Grant & Sons, The UB Group … even Pernod, despite its long-running battle to bring down debt, post-Absolut.
The tune has stayed the same for the better part of two years now, with Beam all the while going about its business, albeit with a change of leadership - Flocco stepped down in October 2008 and was replaced by ex-Cadbury executive Matt Shattock in early 2009 - and a slightly inflated share price - thanks to its perceived position as a takeover target of the future.
During that time, it has changed its name to Beam Inc and emphasised its status as the biggest US-based spirits company in the world. It has continued to acquire brands of its own, including Skinnygirl in March 2011, Ireland's Cooley Distillery in late-2011 and the Pinnacle vodka and Calico Jack rum brands from White Rock Distilleries last year.
On the back of these transactions, coupled with strong performances from its so-called “Power Brands”, including Jim Beam, Sauza, Maker's Mark and Courvoisier, Beam has delivered healthy numbers in its two full-years as a standalone company: sales were up by 10% and profits rose by 13% in 2011, with last year's sales increasing by 7% and profits up by 15%.
But still, the rumours swirl. Indeed, there's little chance that the rumour mill sill slow down any time soon.
Whatever: Beam's journey since April 2008 has been a fascinating one that clearly still has at least some distance left to run.
Companies: Absolut, Pernod, Beam Global, Ricard, Stolichnaya, Fortune Brands, Diageo, Constellation, Bacardi, Maxxium, The Edrington Group, Remy, Cointreau, William Grant, Cooley, The UB Group, Cadbury
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