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?

Brown Hangs Tough

Brilliant bit of cross-market analysis at just-drinks.com by Chris Mercer (subscription-only, sorry) on Pernod's situation vis-a-vis the market analysts' slapping of them for their positions on debt and portfolio. The analysts want them more in "white goods" (vodka, light rum, and to a lesser extent, gin) which, the conventional wisdom goes, are more recession-resistant.


Mercer points out that Pernod's actually doing just fine with brown goods, thank you.

"In Jameson and Martell, the drinks giant has found two brands that have expanded its reach and made a mockery of weak consumer confidence. Asia's thirst for premium Cognac drove a 12% rise in net sales for Martell Cognac during Pernod's fiscal year, to the end of June. At the same time, the firm managed to round up enough consumer spending power in the US to achieve a 12% increase in global value sales of Jameson Irish whiskey... No wonder the firm is planning to expand storage capacity for Jameson in its native Ireland."

Suck on that, vodka. In fact...

"Its final dividend proposal is also the biggest for five years, at EUR1.34 per share. In short, early market jitters have hidden several reasons for Pernod to be cautiously cheerful."


...suck on that, analysts. I really wonder sometimes if the market analysts know anything about the actual industry they follow.

(Yeah, I realize that I know nothing about EBITDA and ROI and P/L ratios; I figure that makes us even. What they need is someone who knows both...or a team. Ahem...I'm available.)

Breaking story...Pernod Ricard sells off glögg brands...

In a shocking move, Pernod Ricard announced that they would sell off almost all the Vin & Spirit brands they purchased just last year. The French family firm, the world's second-largest drinks company, paid kr55 billion (about $8.9 billion) for the Swedish state-owned firm. They will be keeping only one brand and selling off everything else, including Blossa Glögg and 40 brands of wine, like the popular Chill Out brand.



Okay, it's not actually shocking: the one brand they're keeping is Absolut, which was the only reason they bought V&S in the first place. I just saw the story, and I wanted to put the word glögg in a headline. Sorry. Back to work.

Gruppo Campari acquires Wild Turkey

I have to admit that I was surprised by the news today that Gruppo Campari, the makers of, well...Campari, have acquired Wild Turkey from Pernod Ricard for $575 million in cash. Not surprised that Wild Turkey was sold; there have been rumors about that. Pernod borrowed a lot to buy Absolut last year, and they're looking for cash to retire the debt; selling Wild Turkey was a quick way to do that, and analysts feel this was a good price.

This is Campari's biggest acquisition so far; they also recently bought SKYY vodka (2002), Cabo Wabo Tequila (the Sammy Hagar booze), and X-Rated vodka (both 2007), and picked up Glen Grant (a single malt that's big in the Italian market) as a side deal in the Allied Domecq dismemberment. Wild Turkey's definitely a jewel among those brands: it's growing, it has a strong foothold and excellent reputation in the U.S., Australia, and Japan, and, of course, it comes with Jimmy Russell.

This could be a smart move for Campari. Wild Turkey is a premium brand, in the honest sense of the word (maybe they'll enhance that premium aspect by dropping Wild Turkey 80 proof?). It has great name recognition; so does Campari, but people actually drink Wild Turkey.

What's this mean for Wild Turkey drinkers? Probably nothing at all, thankfully. It's all going to be back-office stuff: new wholesaler, new sales rep at most, and maybe not even that. Did anyone in the eastern U.S. even notice when Corona changed importers a few years ago? Nope. Wild Turkey has a strong enough pull from consumers that orders should keep up even if Campari bobbles things a bit (which they probably won't; they must have some kind of sales force, because there's a bottle of Campari on every damned back bar and I never see anyone actually drinking it).

I'll admit, this makes me a little sad. Wild Turkey was one of Pernod Ricard's earliest acquisitions, and they've been with the company for almost thirty years. Jimmy Russell will tell you that Wild Turkey is just a little family-owned company...only the family lives in Paris. I don't know if the Campari family still controls most of Gruppo Campari, but Milan (not Torino, as I originally misstated) just doesn't have the same pizzazz as Paris.

Wild Turkey an endangered species?

Chuck Cowdery is reporting on his blog that there are "published sources" reporting that Wild Turkey is available for sale. Pernod Ricard, which has owned the distillery for over 20 years, bought Absolut producer Vin & Spirit, and is looking for cash to pay off the debt.

Interesting, but...as Chuck points out: "The other problem is, the distilled spirits industry is so consolidated now, who could buy it?" Uh-huh.