Fortune Brands Inc., planning a breakup of the company, selected Morgan Stanley to run an auction for its golf division in a sale that may fetch as much as $1.5 billion, said four people with knowledge of the matter.
Morgan Stanley may approach potential strategic acquirers such as Nike Inc. and Adidas AG, as well as private-equity firms and Asian companies such as Sumitomo Rubber Industries Ltd., which owns the Srixon golf-ball brand, said the people, who asked not to be named because the discussions are private.
Fortune, also the maker of Jim Beam, announced Dec. 8 that it would split into three separate businesses and focus on distilled spirits, after activist investor William Ackman acquired a stake. The company will spin off its home and security division and sell or spin off the golf unit, which makes Titleist golf balls, Fortune said last month.
The company’s decision on the golf unit will depend on interest from potential buyers, one person said. The division generates annual earnings before interest, taxes, depreciation and amortization of about $120 million and could fetch 10 times to 11 times earnings, said the people. That would result in a sale price of about $1 billion to $1.5 billion, the people said.
Clarkson Hine, a spokesman for Deerfield, Illinois-based Fortune Brands, declined to comment. Derek Kent, a spokesman for Nike, and Katja Schreiber, an Adidas spokeswoman, declined to comment. A spokesman for Morgan Stanley declined to comment.
Terusato Yamada, spokesman of SRI Sports Ltd., the sports business unit of Sumitomo Rubber, declined to comment in a phone interview today.
Fortune and its board are already using advisers from Credit Suisse and Centerview Partners on the divestitures and broader corporate strategy. Fortune wouldn’t have to pay as much in taxes from a sale of the golf unit as it would with the home and security business because the realized gains on a sale would be smaller, said one person.
Fortune fell 3 cents to close at $60.30 in New York Stock Exchange composite trading.
Chief Executive Officer Bruce Carbonari said Dec. 8 that Fortune found “much strategic common ground” with Ackman’s Pershing Square Capital Management LP, which became Fortune’s largest investor last year. Ackman has sought to dismantle Fortune, founded as a tobacco company almost 150 years ago, to boost the value of its stock.
Fortune has an enterprise value of $13 billion, which includes items such as debt. Alone, the sports equipment business may be worth $1.1 billion, according to Doug Lane, an analyst with Jefferies & Co. in New York. That’s based on estimated 2010 earnings before interest, taxes, depreciation and amortization of a set of peer companies he evaluated.
The spirits business, anchored by its bourbon brands, could be worth $8.4 billion, while the home and security unit may be worth $3.5 billion, Lane said.
Fortune’s origins date back to the 1864 founding of its predecessor by North Carolina farmer Washington Duke, according to Hoover’s Inc. The company expanded into home products in the 1980s and added seven liquor brands from Seagram in 1991. It has owned the Jim Beam distillery since the 1960s and exited tobacco in the 1990s.
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