By Clementine Fletcher and Leslie Patton
Suntory Holdings Ltd., the closely held Japanese whiskey and beer maker, agreed to buy Beam Inc. for $16 billion including debt to gain brands such as Maker’s Mark whiskey and create the world’s third-largest premium spirits company.
Investors in the maker of Jim Beam and Canadian Club liquor will get $83.50 in cash per share, Osaka, Japan-based Suntory said yesterday in a statement. That’s 25 percent more than Beam’s closing price Jan. 10. The transaction value includes Beam’s debt, which wasn’t detailed in the statement. The company has $2 billion in long-term borrowings, data compiled by Bloomberg show. Based on Beam’s about 163.1 million shares outstanding, equity value would be $13.6 billion.
Suntory, the maker of Yamazaki whiskey and Premium Malt’s beer, is seeking to boost overseas growth as the population in its home country shrinks and ages. The company in 2012 had explored an offer for Beam alongside Diageo Plc. Beam, whose largest shareholder is activist investor Bill Ackman’s hedge fund, in 2012 got 59 percent of its revenue from North America and 21 percent from Europe, the Middle East and Africa.
“Companies like Suntory have no choice but to go abroad because of the aging population in Japan,” Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo, said by telephone today. “They have acquired a blue-chip company with stable cash flow, so overall it is positive.”
Beam rose 25 percent to $83.42 at the close in New York yesterday. The advance would mean a $342.5 million gain for Ackman’s Pershing Square Capital Management LP if its stake is unchanged from Sept. 30. The shares traded as high as $83.61, topping the offer price, indicating some investors expected competing bids. Deerfield, Illinois-based Beam gained 11 percent last year.
The takeover would be the largest overseas acquisition by a Japanese company since SoftBank Corp. (9984) acquired Sprint for $21.6 billion in a deal announced in 2012.
Fueled by a strong currency, Japanese companies embarked on an overseas buying spree that peaked with $113.5 billion worth of deals announced that year, data compiled by Bloomberg show. With the yen weakening, the value of overseas deals announced last year dropped to about $46 billion, the data show.
Mitsubishi UFJ Morgan Stanley advised Suntory, while Centerview Partners and Credit Suisse worked with Beam on the deal, according to the joint statement yesterday.
The takeover is 2014’s biggest and the sixth-largest ever in the beverage industry, according to data compiled by Bloomberg. Beam was formed with the breakup of Fortune Brands Inc. in 2011. Since then, the company acquired Pinnacle Vodka & Calico Jack Rum Brands in 2012 and sold Select Brands last year.
Suntory’s offer values Beam at about 20.5 times earnings before interest, taxes, depreciation and amortization of $775 million in the year through September, data compiled by Bloomberg show. That compares with a median of 12 times historic Ebitda paid in 16 purchases of wine and spirits assets over the past five years, the data show.
“Strategically, it makes sense for Suntory,” said Trevor Stirling, an analyst at Sanford C. Bernstein & Co. in London. “I’m a little surprised they decided to go it alone, but at the moment there are low yen interest rates.”
Acquisition talks with Beam began in November, Hasumi Ozawa, a Suntory Holdings spokeswoman, said in a telephone interview. Suntory will use cash and a bridge loan to finance the deal, she said.
Mitsubishi UFJ Financial Group Inc.’s lending arm provided financing for the deal, according to the statement.
Pernod Ricard SA, Europe’s second-largest spirits maker, is unlikely to make a counteroffer for Beam based on the valuation of the deal, said a person with knowledge of the matter.
Suntory’s offer is a “fair price,” and it is hard to predict if any other bidders will emerge, said Jack Russo, a St. Louis-based analyst at Edward Jones & Co.
“This industry has been going through some consolidation, similar to other sin industries,” Russo said in a telephone interview. “There’s not many pure-play alcohol companies left, so I think there was a scarcity value.”
Beam Chief Executive Officer Matt Shattock has recently tried to lure drinkers and boost revenue with flavored liquors, such as Pinnacle pumpkin pie vodka and maple bourbon. Net sales in the three months ended Sept. 30 fell 4.5 percent to $598.7 million as results in Beam’s Asia Pacific and South American region lagged the company’s expectations.