Fortune Brands Inc.’s Beam liquor division, which begins trading as a standalone company next month, said it’s prepared to make large acquisitions if the right opportunity arises.
“We won’t feel constrained in terms of the scale,” Beam Inc. Chief Executive Officer Matt Shattock said today in a telephone interview. “We have a strong and very flexible capital structure and that gives us the opportunity to contemplate various types of transactions.” He declined to identify potential acquisitions or how much the company may pay.
Fortune, which sold its Titleist golf unit for $1.23 billion this year and will spin off its home and security unit, is shifting focus to liquor after investor William Ackman pushed for change. Beam may buy smaller companies “that aren’t on the radar” and also has the capacity to consider brands such as Bacardi rum or Constellation Brands Inc.’s Svedka vodka, said Tim Ramey, an analyst with D.A. Davidson & Co.
The company is more likely to consider acquisitions of as much as $500 million, Ramey, who is based in Lake Oswego, Oregon, said in an interview today.
“The spirits business globally remains quite fragmented,” said Ramey. “They will be a consolidator.”
The highest priority for Beam, which begins trading Oct. 4, is to spend its free cash on marketing, sales and distribution to grow existing brands, Shattock said. The company is adding new versions of established brands in the U.S. and boosting sales of Jim Beam bourbon and Teacher’s whisky in overseas markets including India and Latin America.
Since the beginning of last year, Deerfield, Illinois-based Fortune has boosted brand marketing by $50 million. Almost a quarter of sales growth last year came from new products, Shattock said. Product introductions must help margins, boost awareness of existing brands and attract new consumers, he said.
Next week, Beam will announce a new flavored bourbon and a new version of Courvoisier cognac, Shattock said. The products will be introduced to Beam’s sales force next week and will be shipped in the first quarter. The company recently introduced black cherry-infused Jim Beam called Red Stag and a Courvoisier Rose blended with French red wine grapes.
“Our fundamental strategy is we have a great opportunity to grow the organic value of this business significantly,” Shattock said. “Our objective is to outperform the markets in which we operate at the sales line.”
The fourth-largest global spirits company also will consider acquiring new brands and distribution to accelerate growth, he said.
“In this industry, acquisition is a very important driver and something that we will be looking at very seriously,” said Shattock, who is 49.
Beam’s strategy to take control of its distribution system in recent years will justify larger deals, Ramey said. The company in 2008 and 2009 took control of the distribution of 75 percent of its global sales, up from 8 percent.
“They could make a case that they could buy something and immediately have a steep change in the reach and intensity and success of their distribution on a new brand,” Ramey said.
Asset values in the global spirits industry are “very high” because the sector has been resilient in a weak economy and provides strong cash flows, Shattock said.
“It’s a fact of life in this industry and a reflection of industry strength,” he said. “Given those values, we will look, as will others, to make sure that any opportunities out there are ones that we can deliver incremental value against.”
Fortune’s spirits unit, which includes Maker’s Mark bourbon, Effen vodka and Sauza tequila, is the company’s most profitable unit, reporting income of $544.3 million last year.
Fortune rose $1.52, or 2.7 percent, to $58.11 today in New York Stock Exchange composite trading. The shares have declined 3.6 percent this year.
Fortune Director David Mackay, former CEO of Kellogg Co., will take over as the non-executive chairman of Beam. Fortune CEO Bruce Carbonari will retire at the end of 2011, the company has said.
Diageo Plc, based in London, is the largest liquor company in the world.