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The Sum of Beam’s Parts is Greater Than the Whole

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Following Suntory’s accepted bid of US$16 billion for Beam, there has been much comment about the high price the Japanese company has paid, in fact so much so that it will almost certainly prevent further bids. Suntory has probably paid too much for the total company due to fundamental weaknesses in Beam, namely a narrow geographical spread combined with a large proportion of its volumes being accounted for by low growth, lower value local brands with little appeal.

However, broken up, both Beam’s high-quality international brands such as Jim Beam and its large volume but low growth local brands such as Windsor and Larios Gin could offer greater premiums for potential acquirers such as individual and small groups of brands than as a whole. For the former, it offers a very rare opportunity for international companies to acquire a readymade brand which can be plugged into their international distribution networks, while for local brands it offers a great opportunity for both North American and Spanish-focused companies to gain scale and broaden their geographical spread.

Prior to Suntory’s bid, if international spirits companies were going to be the buyers, it was always going to be the case that Beam was going to be broken up, with its assets split between a number of different acquirers due to competition issues. Due to the lack of a major presence in tequila and bourbon/other US whiskey, Pernod had most to gain in leading such a bid, so it could pick up both the Jim Beam and Sauza brands and possibly one of the small batch bourbons. Pernod would have had to divest much of Beam, such as Courvoisier and Beam’s Spanish brands.

International Premium

Pernod, thanks to its success in paying down debt from the V&S purchase and putting what debt it has into long-term repayments at low rates, does have money to spend. It may not have as much as it would like and so would have to give up some of the brands it would prefer to keep, such as Maker’s Mark, but it should be able to pay high multiples as both Jim Beam and Sauza will deliver significant synergies both in terms of boosting its existing portfolio in the US as well as putting these narrowly focused brands into its international distribution system.

Other high-quality premium Beam brands, notably the small batch bourbons Maker’s Mark and Knob Creek and Courvoisier cognac, will attract a lot of interest from cash-rich international companies. The small batch bourbons would be appealing to companies such as Diageo, which would be delighted to get hold of Maker’s Mark, while smaller players such as Rémy Cointreau or possibly William Grant or Edrington might be interested in Knob Creek.

Courvoisier, the last remaining major cognac brand available, would also be a much-sought-after brand. It would be a good fit with William Grant’s portfolio and the British company has substantial funds available (US$1.3 billion in shareholder funds in 2012) and negligible long-term debt. Brown-Forman, also with low debt, could be willing and able, as could Bacardi to a lesser extent.

More suitable for Bacardi’s geographical focus would be Beam’s Scotch portfolio, led by Teacher’s, which commands a leading position in two key markets, India and Brazil. In India, Bacardi has been looking for a high-end Indian whisky or a low-end Scotch to give it suitable weight in the market. Campari has similar geographical interests and is looking to boost its whiskies’ presence. It could, however, be impacted by a lack of funds following its Wray & Nephew acquisition. However, it might be able to gain Beam’s Irish whiskey operations. One should also not rule out Rémy on either count.

Local Brands Equally Sought After

There is also likely to be competition for Beam’s less glamorous North American, Spanish and Mexican assets. Small to mid-sized local companies in these markets would be keen to gain scale. Brands such as the fast growing Pinnacle would gain a premium while other low growth brands such as Windsor or Larios Gin and Fundador (Mexico) would give these companies much-needed scale and also the opportunity to expand into new markets, be they countries or in the US’s case, states.

In North America, De Kuyper might want to take the opportunity to buy back the US rights to its brand. Sazerac could be interested in Beam’s Canadian-specific brands following its 2012 acquisition of Canadian brands from Pernod. Constellation Brands could be interested in Cruzan Rum while Heaven Hill and McCormick could be interested in broadening their portfolio and possibly moving into Canada or Mexico.

In Spain, French company La Martiniquaise, which has been looking to expand in Spain, could want either Larios or Dyc, as could local companies Varma and Diego Zamora as they look for scale.

There is also the possibility, if Pernod leads the bid, for companies to acquire some of Pernod’s brands to boost the French company’s cash fund. Pernod would probably be happy to sell a brand such as Seagram Gin or a similar lower priority brand in return for boosting its chance to get Jim Beam or Sauza.

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