(This is about the sale--April 1st)

Investors toast loss in Absolut bidding

Fortune Brands' stock up after rival pays premium
By Mike Hughlett | Tribune reporter
April 1, 2008

Fortune Brands Inc. on Monday lost its bid to buy Sweden's Vin & Sprit AB, a deal that would have given it global rights to the coveted Absolut vodka brand. With its failure, Fortune will lose U.S. rights to distribute Absolut, representing a long-term hit to its liquor business.

Yet investors couldn't have seemed happier Monday, rewarding Fortune's stock with its biggest one-day percentage gain in more than seven years. That's because they were relieved the Deerfield-based company didn't do what Wall Street feared most in the short-term: Pay too much for Vin & Sprit.


Instead, somebody else did, or at least that's the way some stock analysts interpreted it Monday. Pernod Ricard SA of France, the world's second-largest liquor company, agreed to fork over $8.3 billion to the Swedish government, owner of Vin & Sprit.

Analysts had been expecting a sale price of $6 billion to $7 billion. "I was very surprised by the price," said Ann Gilpin, an analyst at Morningstar Inc. "Pernod paid a huge premium."

Pernod's stock sank 4.3 percent in Paris trading, as investors worried the firm paid too much. Meanwhile, shares of Fortune Brands, the world's fourth-largest spiritsmaker and owner of such brands as Jim Beam and Canadian Club, surged $5.64, or 8.8 percent, to close at $69.50.

Part of the stock's climb stemmed from the company's announcement it plans to repurchase 15 million shares of its common shares. But Gilpin said she thought the stock's jump "was just a relief from a crisis averted."

Fortune, a mini-conglomerate that makes everything from golf balls to faucets, has made no secret of its desire for Absolut, the top-selling U.S. vodka after Smirnoff.

Investors worried that overpaying would eat into future earnings with big debt-service costs or by issuing new shares to finance a deal, a negative to existing stockholders.

Uncertainty over the Absolut deal has been a weight on Fortune's stock in recent months, analysts said. The company's chief executive, Bruce Carbonari, seemed to acknowledge the same Monday.

Price called too high
"A lot of [investors] thought we would stray from the ranch, but we didn't, and they respected that," he said in an interview with the Tribune. While the company had a "fully financed deal, ready to go," the price for Absolut was just too high to generate an appropriate return.

He declined to give details of the bid, in which Fortune teamed up with Nordic Capital, a major Swedish private-equity firm.

Fortune was one of several companies eyeing Vin & Sprit over the past year after the Swedish government put it up for sale. Some industry analysts thought Fortune had an advantage because of its U.S. distribution joint venture with Vin & Sprit.

The partnership was formed in 2001 when Vin & Sprit, which also makes Cruzan rum, essentially paid $270 million to get access to Fortune's distribution network. At the same time, the Swedish company bought 10 percent of Fortune's Jim Beam brands subsidiary, a stake worth $543 million today, according to securities filings.

With the sale to Pernod, Fortune said Monday it will start repurchasing Vin & Sprit's 10 percent stake. Also, Fortune said it plans to continue distributing Absolut in the United States until 2012, when its agreement expires.

But after that, Fortune's vodka presence will be diminished. It has its own vodka brands —Vox on the superhigh end; Gilbey's, Wolfschmidt and Kamchatka on the low end— but they are relatively small players.


Looking at options
The loss of Absolut, "clearly creates a hole in their portfolio," said Peter Lisnic, a stock analyst at Robert W. Baird & Co. "I'd imagine there are strategic options they are looking at."

In fact, there is already speculation about Fortune as a suitor for Stolichnaya, the famous Russian vodka.

Pernod's acquisition of Vin & Sprit will result in the termination of Pernod's agreement to distribute Stolichnaya outside of Russia. Stolichnaya's Russian owner, SPI Group, could find a new distributor. Or it could sell Stolichnaya, Andrei Skurikhin, a minority investor and former director of the Russian company, told Bloomberg News.

Baird's Lisnic said Stolichnaya and Fortune "could be a natural fit."

Carbonari said "Vodka is a very attractive category and Stolichnaya is a very attractive brand, but there are other brands that are attractive, and not just in vodka."

He said Fortune, with its strong portfolio of whiskey brands, is well positioned financially to make a deal, and it will be looking close at any opportunities. But Carbonari added, "We don't need to make a big vodka play."

mhughlett@tribune.com

http://www.chicagotribune.com/business/ ... 7034.story