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Not When Harry Met Sally…When Suntory bought Beam!

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By Ben Bouckley+

03-Jun-2014
Last updated on 03-Jun-2014 at 16:54 GMT

Rodrigo Amorim/Flickr
Rodrigo Amorim/Flickr

Suntory’s $16bn takeover of Beam Inc. shocked many industry insiders but the likes of Diageo, Pernod Ricard and Bacardi likely sighed with relief, according to Rabobank.

Since Beam’s spin-off from Fortune Brands in late 2011 the company was always seen as a takeover target, although success under CEO Matt Shattock’s capable leadership had cooled talk somewhat.

But Rabobank says in its Spirits Quarterly Q2 report that investment bankers and spirits industry executives spent hours speculating which major western spirits ‘Sally’ (our movie-related good-friends-turned-lovers analogy this) out of Diageo, Pernod Ricard or Bacardi would buy Beam (Harry)?

“Japanese-owned Suntory was rarely considered. The speed at which the Beam deal was done and the multiple paid seemed to catch most industry insiders by surprise,” the Rabobank report, written by its Beverages Sector Team led by analyst Stephen Rannekleiv, states.

“We expect that surprise was followed by a sigh of relief from many of Beam’s competitors, as the industry status quo was maintained,” it adds.

Western spirits assets attract growing pool of suitors

Surprises emanating from Asia did not stop there in the year to date, Rabobank’s analysts add, with USL’s sale of its Whyte & Mackay assets – to push through the merger with Diageo – to Philippine brandy firm Emperador for $724m another surprise.

“The W&M brands will support Emperador with sales in its home market, and also in its plans to expand its global footprint,” Rabobank said.

Suntory sought expansion beyond a stagnant Japanese market – the company was also negotiating a deal to buy a 26% stake in India’s Radico Khaitan for $558m, although reports suggest the deal could stall – and taken together Rabobank says both firm’s deals are an important industry development.

“Interest in acquiring westerns spirits assets is quickly growing beyond the traditional group of competitors,” the company’s analysts write.

Trends in US spirits – Could brandy follow bourbon growth blueprint?

“For those looking to sell spirits brands, this opens up important opportunities that could drive improved pricing for assets,” they add.

“For those looking to make acquisitions, it’s clear that the bidding process is becoming more competitive,” say the analysts.

“Spirits companies may need to bid more aggressively if they are to be successful in acquiring strategic assets,” they add.

Given low interest rates and an improving economic outlook, Rabobank also predicts that the US wholesale sector could be set for a new consolidation wave following relative silence since a short-lived JV between Glazer’s and Southern Wine & Spirits that ran from 2008-2009.

“We have no knowledge of pending deals among major wholesalers, but if there are deals to be done, it seems that this could be an opportune time,” analysts write.

Talking trends in the US, Rabobank pinpoints Tennessee whiskey and bourbon, flavored whiskies, ryes and small-batch whiskies, Irish and single-malts; the analysts also cite double-digit growth in cognac and brandy.

“Some industry contacts are beginning to wonder if brandy could follow bourbon’s blueprint for premiumisation,” they add.

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