When American Brands (AMB) first-quarter earnings, announced on Apr. 24, failed to meet the Street's consensus estimate, the stock headed up--instead of down. That was no fluke: Several savvy money pros insist that the stock has been on the rise for one particular reason: American Brands is buyout-bound, unless it continues selling off its assets. They figure the shares, currently trading at 39, are worth 55 to 60.

One of the few remaining giant conglomerates, American Brands in December sold its American Tobacco Co. unit to Britain's BAT Industries for $1 billion. And in January, it sold its Franklin Life Insurance division to American General for $1.17 billion.

A conglomerate based overseas, says a New York takeover investor, is contemplating making a bid to buy American Brands, whose assets are valued by Gabelli & Co. analyst Bob Leininger at 58 a share. This prospective suitor usually buys asset-rich, under-managed companies and then sells off some of the assets. Another interested party is a group that specializes in leveraged buyouts. This group puts the value of the company at 60.

American Brands has yet to sell Gallaher, whose brands--including Benson & Hedges and Silk Cut cigarettes--control nearly 42% of Britain's tobacco market. This is the "division that American Brands will likely sell off next," says Leininger--unless an LBO intervenes.

American Brands three fastest-growing businesses--hardware and home-improvement products, golf and leisure items, and office equipment--currently account for about 33% of operating earnings, according to Leininger. American Brands is also a major player in the distilled-spirits business. This unit includes Jim Beam Brands, the second-largest producer of spirits in the U.S. The unit's products include Jim Beam, the largest-selling bourbon; Gilbey's gin and vodka; and Windsor Supreme whiskey.

American Brands "is an excellent target for an LBO," says Leininger, "because all five remaining divisions lead in their markets and are strong cash-flow generators." These divisions, in fact, don't benefit from any synergistic link among them, explains the analyst. So unless management does it, a buyer will likely come in and break up the company to realize the intrinsic value of the assets. American Brands declined comment.

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