Bankers buzzing over Beam buyers

Fortune Brands has bowed to pressure from activist investors and agreed to a separate Wall Street listing for Beam Global. Investment bankers on both sides of the Atlantic are already working on schemes to divide the brands between the drinks industry’s biggest players.

Beam Global had sales of $2.5 billion out of Fortune’s $6.7bn turnover in 2009, but it made 80% of the profits. It owns brands such as Jim Beam (6m cases a year), Maker’s Mark, Courvosier, Sauza, Cruzan and Laphroaig.

Analysts reckon Beam Global made operating profits of about $685m in the year to the end of September and so have put a paper value of $8bn or more on it.

Rival groups will eye its plum brands to bolster their own portfolios, but the key question is whether together they will be able to agree to form a break-up consortium to echo the dismemberment of Seagram in 2001 and Allied Domecq in 2005.

The various competition authorities in Washington and Brussels would not let the whole of Beam fall into one single pair of hands, so the players could let a private equity house make the running and subsequently pick up the brands they want. It would be cheaper, however, to form their own consortium.

Diageo, the world’s leading spirit company, would be keen on Jim Beam, but it is no secret that Paul Walsh, Diageo’s chief executive, wants the 66% he does not own of Moët Hennessy, not least because, along with Scotch, Cognac is the growth engine in emerging markets. Can he afford both, even despite the company generating free cash flow of £2bn a year?

Diageo would have to find buyers for Beam’s Courvoisier, which is a direct competitor of market leader Hennessy, while Sauza is the number two Tequila to Diageo’s Jose Cuervo. Diageo would also probably be barred from controlling Cruzan rum, which competes with Captain Morgan. So to get Jim Beam, if he wants it, Walsh will have to have to find break-up partners.

He has a decent track record, having led the dismemberment of Seagram and playing his weaker hand brilliantly when Pernod Ricard led a combined assault on Allied.

Pernod Ricard lost out to Fortune in the tussle for Sauza five years ago and admits that a global Tequila is a major hole in its portfolio.

But the French company is intent on paying down the debt it incurred to buy Absolut vodka just two years ago. At the recent AGM, Pierre Pringuet, the chief executive, told shareholders that no significant takeovers would be considered yet, even if the group could raise the finance when banks are reluctant to lend.

But he was speaking about the present financial year, which ends at the end of June. This may be the only chance he will get to land Sauza, just as he knew that he had to land Vin & Sprit two years ago to win Absolut. There will be no further chances so Pringuet is no doubt trying to figure out how he could raise funds for a bid without overstretching his balance sheet.

Brown-Forman may also be a player but Washington and Brussels would not allow Jim Beam to fall into the same hands as Jack Daniels (9.5m cases), and while Bacardi would face few regulatory hurdles, it is likely to be thinking of cherry-picking brands – it, too, would like Sauza or Jim Beam.

David Campari has about €400m to spend on acquisitions, making it a potential junior partner in a split of Beam Global rather than a major player, but the company said only a few months ago that it was not focusing on any Beam brands. But that was before this week’s announcement and the increased likelihood that bigger players might be putting together a break-up consortium. Courvoisier would fit very nicely into the Italians’ portfolio.

One thing is certain, however. The calculators are out and soon intermediaries will be shuffling between Beam Global’s rivals as they seek to put a break-up together. It could become a battle of their own balance sheets.

Finance on Friday, 10.12.2010