Comment - Can Fortune Brands hold its drink?
Will Fortune Brands get a fair crack of the whip at running Beam Global Spirits & Wine first?
The writing has been on the walls of Fortune Brands' offices in Illinois for about two months. The conglomerate's confirmation yesterday that it will split up its three business units was clear to see back in October, when hedge fund firm Pershing Square Capital Management announced it had upped its stake in Fortune to 11%. Considering Pershing's previous history of pushing companies to sell off corporate divisions, one can understand that the countdown on Fortune began very soon after Pershing's announcement.
And so, with Fortune's golf and home business divisions set to be spun off or sold, the US firm has said it will concentrate its future efforts solely on its Beam Global Spirits & Wine unit - and with good reason. Beam Global is, after all, the largest spirits company based in the US and the fourth largest premium spirits company globally. The unit is market leader in Bourbon, thanks to the Jim Beam, Maker's Mark and Knob Creek brands, while other gems in the stable include Laphroaig and Teacher's Scotch whiskies, Sauza and Hornitos Tequilas and Courvoisier Cognac. Add to this, Beam Global's leadership status in Australia's huge RTD sector, and the portfolio displays obvious opportunities going forward.
The unit has been the one bright spark in Fortune's tumultuous last few years, as the economic downturn has hit its other two divisions hard. In its last set of full-year results in January, Fortune saw group sales slide by 12%, whereas Beam Global posted a 0.5% lift in sales year-on-year. Not much, but black is always better than red.
Link the pressure from Pershing with the figures of the last few years, and Fortune's move seems predestined.
Of course, talk has immediately turned to which companies are most likely to make a move for Beam Global.
Diageo, we understand, is playing the part of interested observer - much will probably be made of the adjectival part of that phrase. But, the only way the drinks giant is going to get at the brands it wants - namely Jim Beam and Maker's Mark - would be to team up with another interested party. Here's where the Gruppo Campari's of this world sit up and take a sip of coffee. Besides, Diageo's 34% stake in Moet Hennessy - owner of the Hennessy Cognac brand and market-leader - would make the future of Beam Global's Courvoisier a can of worms in the short-term.
Also linked are Bacardi and Pernod Ricard. The latter has been focussed on paying down debt since its Vin & Sprit purchase back in 2008, so a move from sell to buy might not be what the doctor has ordered for the French firm. Bacardi, meanwhile ... . Well, your guess is as good as ours as to what the privately-held firm has in mind on the acquisition front. Bear in mind, however, that the firm has not been afraid to buy in the past, and to pay handsomely for the privilege.
And yet, all this speculation, while adding the colour of gossip to the mix, fails to acknowledge suitably the position as it actually stands right now. Fortune is, after all, planning to keep hold of Beam Global, and has gone on record this year as saying it is prepared to make acquisitions to boost the unit's performance. Such talk has been subsequently backed by brand innovation and investment.
Put it this way: Should Beam be snapped up by a third party, we won't expect the new owner to start using the "We found it in pretty bad shape"-excuse.
But, that is by-the-by. While those in the drinks industry with deep pockets - rumours suggest a price tag of up to US$13bn - may be running their eye over Beam Global, Fortune looks like it has put itself in the somewhat contradictory position of becoming considerably smaller but much, much stronger.
Symington Family Estates has followed its purchase of the Cockburn's Port brand last year by selling back most of its stake in Madeira Wine Company (MWC) to the Blandy Group....
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