Monday, January 13, 2014

It's Suntory Time For Beam Inc


It was announced early this morning that Suntory Holdings has agreed to acquire Beam Inc. in a transaction worth $16 billion. The deal is still subject to shareholder and regulatory approval, though no major obstacles are anticipated. It's a good day to own Beam Inc. stock, as the sale price represents a premium of 25 percent over the closing price of Beam’s stock on Friday. That's what this is about, maximizing shareholder value.

The new entity will be world's fourth-largest distilled spirits company (Beam had been #5), after Diageo, USL, and Pernod. The next bombshell may be a hook-up between #1 and #2, which Diageo is trying to make happen, an effort that is now in the Indian courts.

The footprints of Beam and Suntory overlap so little that it's hard to see why or how anything should change, at least in the short term. According to Shanken News Daily, Suntory and Beam already partner globally, with Suntory distributing Beam products in Japan and Beam handling Suntory’s products in Singapore and other Asian markets. It has already been announced that Matt Shattock, Beam's president and CEO, will remain in his Deerfield office (just outside of Chicago) running the Beam operation.

Certainly no one in Kentucky need worry about their jobs. If anything, they have become more secure as Suntory will help ensure that Jim Beam, Maker's Mark, and the other Beam bourbons continue to perform strongly in Asia, where bourbon has been enjoying its greatest sales growth.

Remember too that U.S. law is absolute that bourbon whiskey must be a product of the United States. Unlike automobiles or televisions, you cannot import bourbon into the United States. It must be made here.

Few American whiskey consumers have ever seen, tasted, or heard of Suntory's Yamazaki, Hakushu, Hibiki, and Kakubin brands, but Suntory already owns Bowmore Scotch and Midori liqueur, both of which are widely sold here.

If Americans know Suntory at all, it is from the 2003 film "Lost in Translation" starring Bill Murray and Scarlett Johansson.

The reality is that there is no bourbon industry. There is a worldwide distilled spirits industry, in which bourbon whiskey is one product category. Ultimately, everyone will sell everything everywhere and it may not really matter where the corporate headquarters is located.

12 comments:

Lazer said...

As long as the distilled spirits industry keeps the bourbon drinkers happy, I have no problem.

Florin said...

Looking at the current Bowmore prices, you may want to load up on Laphroaig while the going is good.

Anonymous said...

Well, Kirin was certainly good for Four Roses...

Soonami said...

Will acquisition by a private company ultimately be beneficial to the brand from an enthusiast perspective? Will it be good for us like Kirin ownership of 4 Roses? Or will it be more like Campari, literally watering down Wild Turkey?

Josh Feldman said...

I was about to post a laudatory defense of Suntory from Soonami's question whether they will water down or not. My perspective is that Suntory is a lion in defense of their superior quality. For example they ran short of Yamazaki 18 in 2013. There was a long pause in the availability of the 18 mid-year it just wasn't stocked in the US. When it came back the price had been raised. Sad to have to pay more but the bottling they brought back was plenty good. Bottom that, that's what matters.

But then I recalled the example Hakushu Heavily Peated - a younger richly peated version of Hakushu, that tempers the peat's heat with all that floral sweetness. It's pretty great at 46% abv. I was excited to hear they will be begin importing it into the US for the first time this spring - but I was miffed they had lowered the proof to 43%. But if that's the cost of getting it in here, so be it. I think Suntory has their head and heart in the right place, but time will tell if that's what gets executed half the world away.

Justin said...

Kirin is been good for Four Roses. I will reserve any judgement until beam products have a track record with Suntory to actually pass judgement upon.

As to Josh's comments about lowering the proof on certain whiskies: I wonder if whisky companies find greater profits pandering to the lowest common denominator of the whisky market. Whiskies like Jack Daniels and Crown Royal have been 40% abv for quite sometime. (Though I am sure many can remember when Jack was bottled stronger). But no one can doubt the sales numbers those whiskies generate. In short, watered down whisky DOES sell. But the real casualties are the whisky enthusiasts like ourselves who like higher proofed spirits.

Chuck Cowdery said...

Believe it or not, whiskey companies give the consumers what they want. Many drinkers prefer the lower proof but higher proof products will always be available, as long as the consumers want them. A big, robust market inevitably means more choices for all consumer preferences.

ad said...

I somehow became a member of the Maker's Mark Ambassadors' page on Facebook. Never paid much attention before, but the level of xenophobic comments showing up on that page in relation to this sale is shocking.

theBitterFig said...

I haven't been drinking whisky long enough to tell from old ownership so some of this is second-hand, but Suntory seems to have done a decent enough job with their Scotch holdings. Bowmore Legend is a drinkable entry-level, and Tempest is often well reviewed. Auchentoshan and Glen Garioch are also doing pretty well.

Meanwhile, adding Laphroaig, Ardmore, and Teacher's to that array, it's starting to be a pretty respectable set of Scotch holdings.

Anonymous said...

As the Japanese like older whiskies, perhaps we'll get some aged limited edition Beams.

JDL said...

Did you see where three different law firms are looking into the merger?

Harry said...

RE: the 80 proof threshold - many states use 40% abv to set their excise tax on spirits. For instance, check out the info at http://alcoholpolicy.niaaa.nih.gov/Taxes_Spirits.html. Spirits with a higher ABV may get hit with a higher tax rate so the per unit of alcohol profit must be balanced against the jump in price due purely to tax, the jump possibly discouraging sales. In short, there may be business reasons for dropping proof - it keeps the final retail price down while making the alcohol go further. Of course, some of us might notice the difference; it's why I moved away from JD years ago and discovered a whole new world in brown, higher proof whiskies.
Regards.
Harry