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Suntory’s acquistion of Beam should warm shareholders, chase off rivals

CLERMONT KY — Bottles Jim Beam Bourbmake their way down conveyor belt inside bottling plant Jim Beam BourbDistillery January 13

CLERMONT, KY — Bottles of Jim Beam Bourbon make their way down a conveyor belt inside the bottling plant at the Jim Beam Bourbon Distillery on January 13, 2014 in Clermont, Kentucky. (Photo by Luke Sharrett/Getty Images)

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Updated: January 14, 2014 3:59PM

Beam Inc. shareholders should find news that the Deerfield-based spirits company has agreed to be acquired by Suntory Holdings Ltd. in a $16 billion deal easy to swallow, and the price should sour others on making competing bids, analysts say.

Beam and Japan-based Suntory said Monday they reached agreement for Suntory to acquire the company for $83.50 per share in a cash and debt-assumption deal that represents a 25 percent premium to Beam’s closing price of $66.97 Friday.

The transaction will create the third largest maker of premium spirits with annual net sales of spirits products in excess of $4.3 billion.

“I think Beam shareholders should be pleased at the transaction,” said Morningstar Inc. senior equity analyst Thomas Mullarkey. “I had thought that $75 would have been a fair price to buy out the company. Clearly with Suntory paying $83.50 I think Beam shareholders are being treated quite fairly.”

It’s possible, but unlikely another player such as Diageo, the maker of Johnnie Walker scotch, could offer a higher price.

“But I don’t think Diageo, which would be the next most likely candidate, would want to enter into a bidding war,” he said. “I think the price is quite rich.”

RBC Capital markets analyst James Edwardes Jones echoed that view.

“A counter bid for Beam would be prohibitively expensive” and offer few strategic benefits for Diageo, he said in a research note.

Beam, is the maker of Jim Beam, Maker’s Mark and Knob Creek bourbon’s, Canadian Club whisky, Courvoisier cognac, Sauza tequila and other brands and employs 3,400 people, including 400 at its headquarters. It had fiscal 2012 sales of $2.5 billion.

Privately held Suntory is Japan’s leading player in alcoholic and non-alcoholic beverages with sales of $17.6 billion last year.

The two already work together. Suntory distributes Beam products in Japan, and Beam distributes Suntory’s products in Singapore and other Asian markets.

Beam had been considered an acquisition target since it was spun off into a separate company by Fortune Brands in 2011.

Beam’s bourbon business is what made it an attractive acquisition candidate, Mullarkey said.

“The bourbon category has really been enjoying terrific growth in the United States as well as internationally, and with [Beam’s] strong brands, specifically Maker’s Mark and Jim Beam, that’s really a great asset for Suntory to acquire. Suntory can really hit the ground running without having to risk growing their own bourbon brand.”

Beam’s President and Chief Executive Officer Matt Shattock and the current management team will continue to lead the business, which also will remain managed from Beam’s Deerfield headquarters.

Shattock said “the combined company will have unparalleled expertise and portfolio breadth in premium whisky which is driving the fastest growth in Western spirits.”

Nobutada Saji, president and chairman of Suntory’s board, said the acquisition will allow the company to achieve further global growth.”

Asked if the acquisition could lead to job cuts, Beam spokeswoman Paula Erickson said, “Suntory has advised us that it wants to create opportunities for the people of Beam and grow the scale of our existing platform, not reduce it.”

But Mullarkey expects the acquisition to lead to some small staff reductions.

“I think some of the cutback would be in the company’s public company costs,” he said. “Since Suntory is private, you won’t have a need for some of the financial reporting or investor facing positions, but I wouldn’t expect anything large scale.”

The acquisition is subject to regulatory and shareholder approval.

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