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Beam, Inc: Takeover Target and Emerging Market Play

December 28, 2011 – Comments (0) | RELATED TICKERS: SAM , TAP , BUD

Beam, Inc (NYSE: BEAM) is the 4th largest premium-spirits company in the world, the 2nd largest in the United States and Australia and the largest US-based premium-spirits company. The liquor industry is a defensive-industry. People buy liquor in good times and bad; in good economics and bad economies. And Beam has recently become a pure-play company in this defensive-industry.

Beam has a very diverse liquor brand-portfolio. To name a few of their many brands, they include:

- Jim Beam: the #1 Bourbon worldwide.
- Maker’s Mark: the #1 super-premium Bourbon brand worldwide.
- Teacher’s: a huge emerging-market brand for Beam. Teacher’s is the #1 Scotch in India and the #2 Scotch in Brazil.
- Sauza: the #2 Tequila worldwide.
- Courvoisier: the #1 Cognac in the United Kingdom and the #3 Cognac in the United States.
- Canadian Club: the #3 Canadian Whiskey worldwide.

There are two main plays with Beam. The first is Beam as an emerging-market play. The second is Beam as a potential takeover play.

The spirits market is mature industry in developed countries. Beam has been taking market-share away from other companies in these developed countries, such as the United States and Australia.

Beam is also quickly growing in emerging-market countries. In these emerging-market countries, premium liquor brands are in high demand from a growing urban middle-class. Currently, emerging-market countries make up about 15% of Beam’s total sales. Beam looks to significantly grow that percentage in emerging-markets over the coming years.

As a takeover target, Beam is the only major pure-play liquor company that does not have significant barriers for another company to acquire it. In October 2011, Beam (formally Fortune Brands) completed the process of spinning-off and selling all of its unrelated-businesses to become a pure-play spirits company. This process helped to unlock shareholder value and made the company much more attractive to potential acquirers who weren’t interested in Beam/Fortune Brands’ former businesses.

Beam sold off their golf division and used the net proceeds of about 1.1 billion USD to pay down debt. And in October 2011, they spun-off their home furnishing and hardware businesses, which resulted in a 500 million USD tax-free dividend to Beam to pay down additional debt. The end-result is a pure-play global spirits company, significantly-less debt and a potential takeover target.

And should Beam not be acquired, the stock should still be owned. The company pays a decent dividend, the balance sheet is strong and the company has great growth prospects.