Goldman Sachs misses a beat on Beam acquisition

Saw in my morning news round-up that Goldman Sachs' analysts don't believe Beam's acquisition of Irish whiskey maker Cooley will affect the chances that Beam itself will become an acquisition target. "Tuck-in acquisition in line with management commentary, does not alter our view of BEAM as a likely acquisition candidate - BEAM has been vocal in its willingness to acquire where appropriate and the scale of this purchase is very small. Given these factors we do not believe the acquisition alters the likelihood of BEAM ultimately being an M&A target." I think they're missing something.

Beam has been an acquisition target since before it was spun off as a pure drinks company earlier this year, a move that was tantamount to dousing it in warm cow blood and tossing it in the tiger cage at the zoo. The Jim Beam and Maker's Mark franchises alone -- and the huge wedge into the growing US bourbon market they represent -- made Beam the top item on the M&A menu for hungry drinks companies like Diageo, Pernod Ricard, and Campari. There may be problems with getting such a large chunk of the bourbon market -- US antitrust action has woken up from a long sleep, see the nixing of the proposed AT&T/T-Mobile merger -- but that would only affect Campari, with their Wild Turkey ownership.

But what about Irish? There are only three Irish whiskey distillers (and four distilleries, counting Cooley's newly re-opened Kilbeggan distillery; though there is strong speculation that William Grant will build a distillery for their new acquisition, Tullamore Dew), and Pernod and Diageo own the other two; Midleton/Jameson and Bushmills, respectively. Cooley is a tiny bit of that market, but may well have an outsize effect on anti-monopoly considerations.

Competition regulators were likely relieved when Pernod was forced to sell Bushmills in 2005 (as part of brand off-loading it had to do in order to buy up Allied Domecq); I suspect they're not going to be quick to allow even this much more concentration of Irish whiskey, especially when it's growing the way it is. Is it a deal-breaker? No. Is Beam still likely an acquisition target? Given the way things have been going the past 15 years, almost certainly. Does this complicate things? Yes, I do believe it does, especially for Diageo (which owns Bushmills and fast-charging Bulleit and the admittedly tiny George Dickel) and Pernod Ricard (ruling the Irish whiskey world with Jameson).

But does it mean anything to you? Hard to say. Did Campari buying Wild Turkey change anything? Not yet; the new distillery was a Pernod project the Italians simply completed, and they're continuing the brand extensions. Diageo buying Bushmills was probably a good thing, long-term.

But I can't help thinking about British brewing. Twenty years ago, there were about six large British brewers left. Now there are none. You can argue that they made crappy beer, but they're gone, and largely the jobs are gone. Do you really want to see American distilling go the same way? Beam is independent; Brown Forman is independent; Heaven Hill is independent; Buffalo Trace/Sazerac and Van Winkle are independent. Now Beam is in the hunt, and Brown Forman's been mentioned. Heaven Hill's probably safe as a family-owned company, but Sazerac? Hard to say.

And of course, it weakens the argument of keeping American distilling American when the company you're concerned about just bought the last independent Irish distiller. Kismet, anyone?

Knob Creek's Flowing Again

Back in June, I got an empty bottle of Knob Creek in the mail with a message from Beam: Thanks For Nothing. Sorry, they said: we didn't make enough Knob Creek 9 years ago, and, well, we're out. Won't be bottling till November, because we won't compromise on every drop of Knob Creek being 9 years old. And "Thanks For Nothing," meaning Thanks For drinking so much Knob that we have Nothing left. Knob Creek, it seemed, had run dry.

I was nonplussed. They sent me an empty bottle? It seemed silly just to make their marketing point. Wouldn't an e-mail with a picture of a man crying beside an empty bottle have been enough? And just who the hell were they kidding, anyway? They must have seen this coming a year or two ago, although nine years ago they clearly didn't foresee the startling rise in bourbon sales that would take place (and Knob is one of the hot brands): they didn't make enough whiskey. They could have just put Knob on allocation. That's about the only option they had, though, because Knob is the oldest bourbon Beam bottles -- so far -- so they couldn't divert older bourbon to fill out the 9 year old stocks (which would be legal: "9 years old" on the label just means that the youngest whiskey in there is 9 years old).

And...an empty bottle? I was, as I said, nonplussed. So I said nothing. And I waited. And I didn't really see any empty shelves, although I did see a lot of mainstream press coverage (complete with analysts actually saying that this could be bad for the brand...who pays these people?!), and the price of Knob on the shelf went up. Hmmm...

Then a week or so ago, I got a full bottle, a special labeling without the usual paper label, just screened, and with a necker that read: "From spirits distilled in the year 2000 and aged a full 9 years." That's better. A full bottle. That I understand.

So what's this mean? That I only respond to full bottles of whiskey? Well, considering that Knob's one of the whiskeys I actually buy occasionally, no, not really. I've got plenty, and I didn't need more. I'll probably give this one away (maybe for a charity thing, been doing more of that lately). Maybe it's just that empty bottles confuse me?

What it really means is a few things. First, it appears that Beam has such a big pipeline that it takes a while to empty it; there was enough Knob in the system to sustain sales for five months. Second, hats off to Beam for sticking to their age statement, something that's been dropping off a lot of whiskey (and whisky) bottles in the past two or three years as sales out-strip supplies. Beam made more of a noise about running out than anyone else did, because they did make that decision to stick to the age statement. Finally, it looks like all this shortage really did was get Knob Creek plenty of publicity, of the good kind: they spelled the name right, and they got credit for sticking to 9 years. Which they should.

Now...how about you make more than enough, and give us a 15 year old at some point?

Kentucky Bourbon Festival: Things Go Flat

Friday morning: After a quick shower and breakfast, I headed out Rt. 62 to the Jim Beam distillery in Clermont, where I joined their press group for the distillery tour. I've been through Beam a few times, but I always figure there's something new to learn.

Sure enough, I learned something new right away: just because a distillery said you can't take pictures last time doesn't mean they'll say you can't take pictures this time. And didn't I leave my camera back in the room! Oh, well, it didn't matter anyway, turned out: when I took my camera along out to Heaven Hill later that afternoon...the batteries were dead. Que sera sera. (By the way, this shot of the top floor of Warehouse Y at Heaven Hill has nothing to do with today; I took it back in June. Just some scenery for you.)

So, the distillery tour at Jim Beam. You'll have to fill in the generalities -- how distilling is done, how long things age, and what's in bourbon -- on your own, and there are some excellent ways to do that; I've just got a few tit-bits for you.

For instance, this distillery is big. They go through 8 truck-loads -- semi-trucks, not little straight-bed haulers -- of grain every day, five days a week, 10 months a year. The corn's from Kentucky and Indiana, the rye comes mainly from Minnesota, and the barley malt from northern Indiana (which surprises me). The distillery (and the one at Boston) makes only bourbon; they bottle other spirits (they were running Lord Calvert when we were there), but they only make bourbon. There are 70 warehouses (70? 71? Damn, I didn't take my notebook, either!) in four spots within 30 miles; the warehouses include a few single-story 'flathouses', but mostly they're standard 'ironclad' rickhouses, including some new 9-story 50,000 barrel dreadnaughts (see, that's a nautical extension from "ironclad'...).

We tasted a little 68.5% white dog -- corn eau de vie -- and then, in the dump room, some 62.5% Knob Creek, right out of the barrel. It was awesome, sweet and authoritative. We drank that with Booker Noe's toast: "May there be no hell...and if there is, I'll see you there!"

Then it was off to Booker's house in Bardstown for the annual Bourboncue, a lunch that features a short bourbon tasting, lots of stories from Booker's son Fred Noe -- who has become a pretty good story teller, if not the charismatic figure his dad was -- and a bunch of pig meat and fixin's. I like this event, because it's not just bottom-feeding media members like me and a bunch of wholesalers: there's neighbors, some of Fred's buddies from the military high school he attended, and just folks.

And the barbecue's pretty damned good -- Bootleg Bar-B-Q, "so good it ought to be illegal," which is beside the liquor store on Bardstown Road where Chuck Cowdery and I stopped Thursday night. It's pulled pork with the sauce already all over it, which purists despise...I et it right up, and had one rib, which was NOT all sauced-up, and was pretty damned good. The beans in pot liquor were PDG too. (Oh, and again, this woman wasn't being eaten by a coyote at the Bourboncue, but it's kind of a funny picture, no?)

I had to run after bolting lunch; had a 2:00 phone interview back at my room. And...I took a corner too sharply -- not too fast, but too sharp -- caught the curb, and ripped the sidewall of the rear tire on my rental crapmobile. I could hear the air hissing out. Damn. I pulled over, locked it, and hustled to the room, cranked up the AC, and did the interview (you'll see that in Massachusetts Beverage Business in November, a pair of single malt sidebars). Then I changed into shorts and a t-shirt, and went and changed the tire. Damn again.

After I got that done, and told the rental company about it (and can't I just wait to find out how much reaming that's going be...), I went out to Heaven Hill's Bourbon Heritage Center, where the lovely (and truly talented) Lynne Grant greeted me. Lynne was lured to Bardstown to create and run the Bourbon Heritage Center after running visitor centers for The Macallan, Famous Grouse, and Highland Park. Lynne gave birth to her first child, Hamish, a week after Bourbon Festival last year; she and her family are traveling to her home in Scotland to show him off tomorrow.

Lynne had a sample of the new limited edition William Heavenhill 225th anniversary bourbon for me. It's 127.6 proof, 18 years and 9 months old, and there are only 225 bottles, selling only at the Center...and they're $500 each. Jaw-dropping. (It was a sample, BTW, not a full bottle. But it was enough that I'll be bringing it with me to some events in the future to share the bounty, so...if you see me, what the hell, ask! Update...already shared 7/8 of the bottle. Sorry.) I got a chance to taste a little later Friday evening, but...I've got work to get done right now, so I'm going to call this a post, and get that done.