In a major corporate deal between Japan and the U.S. companies, the world’s fourth largest sprit company Beam Inc. (BEAM) has agreed to be acquired by the Japanese beverage company, Suntory Holdings Ltd. in an all-cash transaction. This will be the second largest acquisition of an American company by a Japanese one.
Suntory Holdings has offered $83.50 per share to acquire all outstanding shares of the Deerfield, Illinois-based spirit maker. The total buyout amount, including Beam’s net debt, is approximately $16 billion.
The Japanese beverage company’s offer price is 25% higher than Beam’s closing price of $66.97 on Jan 10. Moreover, the valuation comes at a multiple of 20 times of Beam’s twelve-month earnings before interest, taxes, depreciation and amortization (EBITDA) ended on Sep 30 last year and a premium of 24% to the last three months volume-weighted average share price.
Beam’s, management, which now awaits approval from shareholders and regulatory authorities, expects to close the deal by the end of second-quarter 2014. After the deal is sealed, Suntory Holdings will become the world’s third largest whiskey company after Diageo plc (DEO) and Pernod-Ricard SA and will reap annual revenue of about $4.3 billion.
Following the acquisition news, shares of Beam rose above the bidding price and touched its all-time high of $83.61 during yesterday’s trading hours before closing at $83.42, up 24.6% from the Jan 10 closing price. The company informed that shareholders have received a return of approximately 106% since it began operating as a standalone company in Oct 2011.
According to Bloomberg, Bill Ackman’s hedge-fund firm, Pershing Square Capital Management LP, which has 13% stake in the company, reaped $342.5 million yesterday. In 2011, Ackman prompted Fortune Brands Inc.’s management to spin off the company, which led to sale of the golf unit and creation of Beam and Fortune Brands Home & Security Inc. (FBHS) as stand-alone units.
Since its operations as a standalone company, the maker of Jim Beam and Maker's Mark has become an attractive takeover option. With a range of bourbons in its product portfolio, Beam could have been a strategic fit in Diageo’s portfolio, which has only one bourbon.
However, at present, there appears to be minimal possibilities of a takeover by any other prospective buyer since analysts consider the offer price to be appropriate and a higher price would become too expensive. Furthermore, the boards of both the companies have mutually agreed on the transaction and set a hefty termination fee of $425 million, which Beam will have to pay to Suntory if the deal lapses.
Currently, Beam carries Zacks Rank #4 (Sell). Other better-ranked wineries and distillers include, Constellation Brands, Inc. (STZ) sporting a Zacks Rank #1 (Strong Buy).
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