Manufacturers
X20 HISTORIC EBITDA PRICE 'LOOKS VERY PUNCHY': ANALYST

Suntory ‘delighted’ to agree $16bn Beam Inc. takeover

13-Jan-2014
Last updated on 13-Jan-2014 at 17:55 GMT2014-01-13T17:55:36Z - By Ben Bouckley+
Beam Inc. president and CEO Matt Shattock
A- A+

Suntory Holdings and Beam Inc. say they have agreed a $16bn deal that will see the Japan giant take full control of its US rival and maker of Jim Beam and Maker’s Mark.

The $83.50/share cash deal represents an eye-watering x20 EBITDA1 for the 12 months ending September 30 2013, a 25% premium on last Friday’s closing price of $66.97.

The surprise deal – agreed unanimously by the two firms’ boards but still subject to regulatory and shareholder approval – will marry Suntory’s Japanese whisky portfolio (Yamazaki, Hakusha, Hibiki, Kakubin) with Beam’s bourbon brands: Jim Beam, Maker’s Mark and Knob Creek.

(Suntory already distributes Beam products in Japan, while Beam distributes Suntory’s products in Singapore and other Asian markets).

Analyst surprise at price and timing

Other significant Beam brands include Teacher’s and Laphroaig Scotch whiskies, Canadian Club whisky, Courvoisier cognac, Sauza tequila Pinnacle vodka.

Phil Carroll, an analyst at Shore Capital, told BeverageDaily.com that he was a bit surprised by the timing of the deal and the price agreed but "not to the extent that Suntory was on the acquisition trail after its IPO last year".

"But post the GSK deal [to buy Ribena and Lucozade] I thought it would go a bit quiet for a year or so. Also, since Beam split away from Fortune Brands it was seen as the next big acquisition, but then Mr Shattock clearly did a very good job, went out on the attack to an extent and bought Pinnacle Vodka [2012] and Skinnygirl [2011].

"So it seemed they were not just getting themselves in a position to be sold, but more focused on the business itself and its future. Then the market bought into it and the firm ended up with quite a decent rating anyway, pushing it out of where Diageo and Pernod could really go for it."

Press stories surfaced last year suggesting that Suntory and Diageo could team up to buy Beam, Carroll said. "But for me Beam was always going to be too expensive for Diageo to justify - especially since it walked away from Jose Cuervo tequila, which raised the obvious question 'why not go for Beam when you can pick up Sauza?' But they chose to focus in terms of position on higher-end brands like Don Julio instead."

Beam Inc. management will remain

Suntory will leave the Beam’s current Chicago-based management team – led by president and CEO Matt Shattock – in place, and Nobutada Saij, president and chairman of Suntory, said the Japanese giant was delighted to agree the deal given Beam’s leading brands and strong global distribution network.

“I believe this combination will create a spirits business with a product portfolio unmatched throughout the world and allow us to achieve further global growth,” he said. 

“We are particularly excited about the prospect of working more closely with Beam’s excellent management and employees who will play an integral part in the growth of the business,” Saij added.

Carroll said Suntory would be keen to ramp-up its distribution in the US, as the world's most profitable spirits market, where its current share is negligent but Beam has a "reasonable share" as probably the fourth-biggest player behind Diageo, Pernod Ricard and Bacardi.

But Suntory and Beam's rivals wouldn't be quaking in their boots, Carroll insisted. "What the deal allows them to do is access a growing profit pool. I don't see obvious price wars emerging, it's a relatively steady and staid market price wise. It's more a case of ensuring strong distribution and making brands attractive to the consumer via investment behind the brands.

"The differentiator in the US is the three-tier system. So from that perspective Diageo, because of its scale (2.5 times the size of Pernod in the States) does have a competitive advantage. But I'd also say that as you work down the chain the big players generally have the competitive advantage - the bigger the portfolio you have to offer, the more important you are to any distributor," Carroll said.

Especial strength in premium whisky

Shattock said the deal offered substantial value for shareholders, and said the conglomerate would have a No.3 position in premium spirits, behind Diageo and Pernod Ricard, with a larger distribution base.

“With particular strength in Bourbon, Scotch, Canadian, Irish and Japanese whisky, the combined company will have unparalleled expertise and portfolio breadth in premium whisky, which is driving the fastest growth in Western spirits,” he said.

Combined global routes to market would expand the firms’ joint distribution footprint, Shattock added, while production and quality control expertise would be shared.

Carroll said that if the deal went through he expected a stronger push behind Beam's portfolio in Asia, rather than Suntory's brands in the States or Europe.

Damien McNeela, an analyst at Panmure Gordon, told this website that he thought the x20 historic EBITDA "looks very punchy".

"I think the deal looks sensible given Suntory's strategy, the stable of brands being acquired and the associated strong brand equities," he added.

Suntory intends to fund the deal via cash and bank financing.

Related topics: Premium Indulgence, Manufacturers, Beam Inc, Suntory, Beer, Wine, Spirits, Cider