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Breakup makes Jim Beam a tastier takeover target

A Jim Beam bourbwhiskey bottle is shown this Fortune Brands Inc. photo.

A Jim Beam bourbon whiskey bottle is shown in this Fortune Brands Inc. photo.

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roeder report

David Roeder reports on real estate at 6:22 PM. Every Thursday on News- radio 780 and 105.9 FM WBBM. The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday

Updated: December 21, 2011 8:16AM

In the liquor industry, executives are pondering whether they’re up for shots of Jim Beam.

The bourbon is the most recognizable name and corporate entity that emerged from the breakup of Deerfield-based Fortune Brands. In a spinoff completed last month, Fortune Brands shareholders got stakes in two companies. One is the aforementioned Beam, with the convenient ticker symbol BEAM, but with labels that include Maker’s Mark bourbon, Effen vodka and the Skinnygirl line of low-cal, ready-to-drink cocktails, an attempt to define a light-beer niche in spirits.

The other company is Fortune Brands Home & Security (FBHS), with products that range from Omega cabinets to Moen faucets and Master padlocks.

Gone was the old company, a daunting conglomerate that used to extend to Titleist golf balls. It disposed of the golf business last summer in a $1.2 billion sale.

Investors never warmed to the idea of one company in industries with no overlap. So management sold the golf balls and settled on a spinoff of two pure-play companies.

Beam is the star because it owns popular labels and generates substantial amounts of cash, even paying a dividend that provides a 1.5 percent yield. The stock closed Friday at $49.72.

The company also is popular with analysts because it could be a takeover target. After the spinoff, it emerged as the fourth-largest liquor producer in the world and larger competitors Pernod-Ricard (RI), maker of Absolut and Chivas Regal, and Diageo (DGE), maker of Smirnoff and Captain Morgan, could be looking to capitalize on a drinking trend that favors premium bourbon over tasteless beer.

Morningstar analyst Ken Perkins said Beam is positioned to increase earnings faster than the industry as a whole. He said that’s because of innovations such as the Skinnygirl line, which the company puts into what it calls its “rising stars” portfolio.

“A lot of people like Skinnygirl,” said Perkins, who allows that he’s partial to rum.

In October, a Goldman Sachs analyst estimated Beam would be worth $59 a share in a buyout, but a 10 percent rally in the stock over the last month could force that estimate higher. Beam would demand a rich premium for a sale, as unshackling the value of the liquor business was a main reason for the breakup of Fortune Brands.

The wallflower at this speculation party is the home and security business, FBHS, which has lost about one-third of its sales since 2006 to the housing collapse. This stock won’t come back into vogue until they start building subdivisions in Warrenville again, if that ever happens. The brands are well-known, but much of the sales occur through outlets such as Home Depot (HD), and investors might prefer to put their money directly into that stock.

In FBHS’ defense, it has hung on to a tight profit margin, and management insists its business can quickly be ramped up if housing improves. FBHS closed Friday at $15.51.

One thing is for sure. If age, tight money or changing circumstances mean you’re spending more time on the home front and prefer to have a drink there, these two companies have you covered.

GOING LONG: If you prize a long-term outlook in a short-term world, consider the latest “Better Values” list issued by William Blair & Co. The firm puts one out every two months or so and highlights stocks it believes will significantly outperform the market over the next two years. It has a good record of hitting that mark.

Its latest better values are among the large caps, CVS Caremark (CVS), MasterCard (MA), Broadcom (BRCM), Mead Johnson Nutrition (MJN), Ecolab (ECL) and Nielsen Holdings (NLSN); mid caps LPL Financial (LPLA) and SXC Health Solutions (SXCI); and small caps 51job (JOBS) and Neklar Therapeutics (NKTR).

LPL Financial caught my eye on this list. It’s a provider of financial advice without the conflicts of the investment banks. Nielsen is, yes, the TV ratings company that also compiles massive data on consumer products and people’s use of online and mobile media.

CHECK THOSE STATEMENTS: Northern Trust Corp. said the 300 institutional investment plan sponsors in its survey lost a median 9 percent of their assets during the third quarter. But keep the faith. The third quarter historically is the worst quarter for the plans, while the fourth quarter is the best. See, “sell in May and go away” works, so long as you’re back in the market about the time of the baseball playoffs.

CLOSING QUOTE: “Right now, we have the worst of both worlds. We have a purportedly capitalistic system with a lot of rules that are not strictly enforced, and when things go wrong, the government steps in to protect banks from the market consequences of their own worst decisions. To me, that’s not capitalism.” — Mike Mayo, banking analyst and author

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