Wednesday, December 15, 2010

Absence Of News About Fortune Brands Doesn't Keep People From Talking.

Although there has been no actual news since last week's announcement, people continue to talk about Fortune Brands spinning off its home products and golf products businesses to concentrate on distilled spirits, i.e., its Beam Global business.

One theme, popular on the east side of the Atlantic, is that Fortune/Beam is in play, a possible target for Diageo. This seems to be based solely on the fact that Diageo is light in the booming American whiskey segment in which Fortune/Beam is heavy. It ignores a host of reasons why that doesn't make sense.

The biggest reason? Fortune is putting its other businesses, which are considerable, in play in order to become a bigger player in the distilled spirits business. What do you think they will do with the cash they get from selling or spinning off those businesses? Buy a railroad? They're going to buy more distilled spirits assets.

That's not to say they are sure to be successful. If they aren't they may become an acquisition target down the road, but that's a long way off. The actual break-up plan hasn't even been announced yet, let alone implemented.

On the other side, Jim Beam and the other bourbons are about the only brands in Fortune/Beam's portfolio that Diageo can absorb. Can Diageo add Canadian Club to a portfolio that already includes Crown Royal? Can it add Sauza to a portfolio that already contains Cuervo? How can Diageo possibly add any more scotch brands?

In every other category where Beam is big, Diageo is already bigger. Diageo would have to have a partner, as they did when they and Pernod carved up Seagram's a few years ago, or as Pernod did with Beam when they carved up Allied Domecq. They would need a partner that could absorb the whole Fortune/Beam portfolio sans the bourbons. Who might that be?

The speculation also ignores Diageo's historic exit from a major position in American-made whiskey barely a decade ago. It also ignores the profile Diageo has adopted since then with regard to American whiskey. It has the premier Canadian Blended Whiskey, Crown Royal, the 'other' Tennessee whiskey George Dickel, and a thriving premium bourbon in Bulleit. It also has the number one American blended whiskey in Seagram's Seven Crown and a major export-only bourbon I. W. Harper. A resurgent Jeremiah Weed is in there somewhere too.

None of those is Jim Beam, Maker's Mark or Knob Creek, but still...

Taking the historic view, one irony of this story is that Fortune started life as a tobacco company (the American Tobacco Company) and is now going to be a pure play spirits company. So much for diversifying out of the vice business.

2 comments:

kallaskander said...

Hi there,

on the other side of the Atlantic they say that Diageo is filling the coffers in order to be ready when Louis Vuitton Moet Hennessy might sell their spirits arm Moet Hennessy. Diageo already owns 33% and it would give them what they probably want more than another American whisky. A Champagne and a Cognac. They would have to sell on Ardbeg and Glenmorangie most probably but all in all it would make more sense to them to buy from LVMH.

Greetings
kallaskander

Chuck Cowdery said...

And they'll probably find a ready buyer for Ardbeg and Glenmorangie in Brown-Forman, which had the U.S. distribution rights pre-LVMH.