Why Beam's Liquor Is So Valuable, Especially in Asia

Japanese beverage giant Suntory is paying big to tap the U.S. market.

Its $16 billion deal for Beam, the distiller of Maker’s Mark bourbon and Courvoisier cognac, represents a 35 percent premium to its global peer group, according to Bloomberg income data on the sector. The purchase price is also a 25 percent premium to Beam’s closing price on Friday, reflecting above all the popularity of bourbon and the growth Beam and other distillers have seen as they’ve experimented with whiskey flavorings to expand the market.

“Bourbon has become pretty well accepted in most of the markets it goes into these days,” Bloomberg Industries analyst Kenneth Shea says, with Suntory far more knowledgeable about selling liquor in Asia than Beam could become. And for an Asian consumer with a fondness for U.S. products, “it’s hard to get much more Americana than these brands,” he says.

The value of Beam derives largely from two facts about the spirits industry. One, no hooch is currently seeing better U.S. sales growth than bourbon. Two, no region or drinks category will see sales increase as much as spirits in Asia, 8.2 percent, through 2017, according to Euromonitor data. Worldwide, the 4.9 percent sales growth expected for spirits will top beer, wine, and carbonated drinks.

“The deal focuses on the most attractive portion of the global $2.4 trillion global beverage industry: the $433 billion spirits industry, which is estimated to grow at about twice the pace of the rest of the beverage industry,” Shea wrote in a research note today. If approved by regulators, the combined company would become the sixth-largest global beverage maker, from seventh.

Aside from Asian bourbon drinkers who may get access to Kentucky-style bourbons, the big winner appears to be Bill Ackman, the head of Pershing Square, which has a 12.8 percent stake and is Beam’s largest shareholder. His Beam stake is valued at about $1.7 billion. Ackman did not respond to an e-mail seeking comment.

As part of its investment, Pershing Square had pushed for Fortune Brands, the conglomerate that owned the liquor brands and several other disparate businesses, to split up and streamline the company, which it did in October 2011. Beam became a separate, publicly traded company, as did a home sink fixture and security business. Previously, Fortune sold its Titleist golf ball business. In a statement, Beam said its shareholders had seen a 106 percent return since it became a separate company. The stock rose 24 percent today, to $83, slightly below the $83.50 bid from Suntory.

Another winner is Mario Gabelli, whose funds hold 1.29 million Beam shares, or 0.79 percent of the company, according to Bloomberg data. Gabelli thanked Ackman today via Twitter: “Bill Ackman … stirred pot at Fortune Brands … Let’s not forget? let’s say NEXT!”

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