January 13, 2014, 7:20 am My Old Osaka Home: Suntory of Japan to Buy Maker of Jim Beam By MICHAEL J. DE LA MERCED and DAVID GELLES
Few spirits are as American as bourbon. But the maker of some of whiskey’s most iconic brands, including Jim Beam and Maker’s Mark, will soon belong to an acquisitive Japanese beverage maker. In a deal announced on Monday to buy Beam Inc. for $13.6 billion, Suntory of Japan struck one of the biggest takeovers in the liquor business in years, transforming it into the third-largest distiller globally. The acquisition may also signal the last mega-deal in the spirits industry for some time. Beam has long been considered the most attractive big target for consolidation. Rivals like Brown-Forman, the maker of Jack Daniel’s, are controlled by families, performing well on their own and have shown little interest in potential takeovers. The giants of the business — Diageo of Britain and Pernod Ricard of France — face many constraints on their ability to grow by mergers. While the two companies had considered bidding for the American whiskey producer, neither ultimately moved ahead. Beam instead was claimed by Suntory, a privately held concern whose beverage empire already encompasses Yamazaki Japanese whisky and Bowmore Scotch. If completed, the deal will add not only Jim Beam, but also pricier higher-end brands like Baker’s and Knob Creek bourbon, Laphroaig and Teacher’s Scotch and Courvoisier cognac. The sale of Beam was a fate many analysts had predicted since its predecessor, Fortune Brands, announced plans to break itself up more than three years ago under pressure from the activist investor William A. Ackman. The conglomerate, which produced liquor, Titleist golf balls and Moen faucets, eventually sold its golf equipment business and spun out its home products division. What was left was one of the country’s biggest producers of bourbon and the beneficiary of a resurging interest in American whiskey. From its roots to 1795, when a Kentuckian named Jacob Beam first sold corn whiskey, the distiller grew, becoming one of the country’s biggest native producers of spirits. Now, it will be owned by Suntory, transferring yet another major American distiller to foreign hands, after years of acquisitions by Diageo and Pernod Ricard. The United States can still claim domestic ownership of big liquor makers, among them Brown-Forman and Buffalo Trace Distillery, but they are smaller. The world’s biggest beer producers, including Anheuser-Busch InBev and SABMiller, are also multinational conglomerates. Domestic breweries, like Sam Adams, largely produce craft beers at a fraction of the volume of their huge rivals. Founded 115 years ago, Suntory created Japan’s first distillery in 1923 using the principles of Scotch whisky production. But it has since grown into a sprawling conglomerate that spans fitness clubs, Subway restaurants, fresh flowers and golf ranges. Nobutada Saji, the company’s chairman and the grandson of its founder, is among his country’s richest men. (In the United States the company is perhaps best known for the commercial that Bill Murray’s character recorded in the 2003 movie “Lost in Translation,” which featured the slogan: “For relaxing times, make it Suntory time.”) In recent years, Suntory has been expanding aggressively overseas to counteract a shrinking market at home in Japan, where the population is declining. Its subsidiary, Suntory Beverage & Food, controls the European drink company Orangina Schweppes, and last year bought the Lucozade and Ribena brands from GlaxoSmithKline for £1.35 billion ($2.1 billion). Buying Beam will bring Suntory’s total annual revenue to $4.3 billion and bolster the Japanese company’s presence in the United States market. “I believe this combination will create a spirits business with a product portfolio unmatched throughout the world and allow us to achieve further global growth,” Mr. Saji said in a statement. Though it had begun weighing a deal for Beam in the second half of 2011, Suntory did not formally approach its American counterpart until around this past Thanksgiving, according to people briefed on the matter. By then, the Japanese drinks company had raised about 390 billion yen, or $3.8 billion, by partly listing its nonalcoholic beverages business on the Tokyo Stock Exchange. It had also secured a financing commitment from the Bank of Tokyo-Mitsubishi UFJ, one of Japan’s biggest banks. A number of factors helped pave the way for a quick deal. The two companies already have a business relationship: Suntory distributes Beam’s products in Japan, while the American company does the same for its partner in other Asian countries like Singapore. And the companies have little overlap in their product lines, allaying fears about potential antitrust problems. Such concerns dimmed the likelihood of a bid from Diageo, whose broad portfolio of brands like Johnnie Walker, Smirnoff and Tanqueray would have probably left it vulnerable to challenges by government regulators. That company has largely pursued smaller deals, largely in emerging markets. The lack of competition among the two companies’ products meant that Beam’s current management team, led by Matthew J. Shattock, could continue to lead the business. By Sunday, Suntory and Beam had largely completed their talks, with the American company and its advisers toasting with a bourbon-Champagne cocktail, one of the people briefed on the matter said. Suntory is paying a rich price for its expansion. It is offering Beam shareholders $83.50 a share in cash, a 25 percent premium to the American company’s closing stock price on Friday of $66.97. The deal values the bourbon maker at more than 20 times its earnings before interest, taxes, depreciation and amortization for the 12 months ended Sept. 30. “It’s a good deal for Beam shareholders,” said John Faucher, an analyst at JPMorgan Chase. “Looking at the rapid growth we’ve seen in bourbon over the recent years, Beam is doing a good job seizing the moment, striking while the iron is hot.” Shares in Beam leaped 24.6 percent on Monday to $83.42, only 8 cents below Suntory’s offer. That suggests investors are not counting on a rival bid to emerge. Analysts said that they expected the new ranking of top distillers — Diageo, Pernod, Suntory and Brown-Forman — to be the status quo for some time, with little chance that one could absorb any of the others. Instead, the most attractive acquisition targets could be smaller privately held companies like the Campari Group, which owns Skyy Vodka and Wild Turkey, and Bacardi, which owns Dewar’s and Grey Goose. Beyond that, there is a long tail of smaller distillery groups, like Buffalo Trace, maker of Eagle Rare bourbon and Pappy Van Winkle, which could be attractive targets for big groups looking for growth. But, given the nuances of the spirits market — scale does not always result in substantially higher profit margins — many of these distillers may be content to remain small and privately held. “The landscape is getting relatively settled,” Mr. Faucher said. “The question is, At some point do these smaller family-owned companies feel the need to consolidate?” Hiroko Tabuchi contributed reporting from Tokyo.
