Fortune Brands Inc will split off its golf and home products units amid pressure from activist investor William Ackman, raising the odds for a takeover of its most profitable business of alcoholic drinks.
Fortune owns Jim Beam bourbon, Titleist golf balls and Moen faucets — brands with little strategic overlap — and has a market capitalization of US$9.3 billion. In October, Ackman’s Pershing Square Capital Management became its largest shareholder after buying an 11 percent stake.
Fortune would keep the spirits business, the world’s fourth-largest, with US$2.5 billion in annual revenue and brands like Sauza tequila and Maker’s Mark bourbon.
Analysts say it would be an attractive takeover target, especially for top player Diageo PLC, which lacks a large bourbon whiskey. According to Reuters Breakingviews, applying a multiple of 15 times operating earnings for the spirits business alone would yield a price tag of US$10 billion.
“It’s really only a matter of time before it gets acquired,” Morningstar analyst Philip Gorham said.
Fortune Brands said it had been considering a restructuring over the last four years as it weighed whether the businesses would be worth more on their own. It said now was a good time, as all the units emerged from a US economic downturn in better shape than expected.
“While the breadth and balance of our portfolio have served shareholders very well, we see the potential for even greater value by separating our businesses into focused companies,” chief executive Bruce Carbonari said in a statement.
Fortune will spin off its home and security unit to shareholders in a tax-free transaction and either sell or spin off its golf business, the world’s biggest. It plans to complete plans for these actions in the coming months.
Last year, spirits made up more than three-quarters of total operating profit, but only 37 percent of sales. Demand for drinks was dampened by the recession, but the unit’s resiliency relative to the others helped Fortune in the recession.
Even though Fortune said it plans to spin off the home unit, one banker familiar with the situation said the move was “tantamount to putting up a ‘for-sale’ sign” on the business, which includes Aristokraft cabinets and Therma-Tru doors.
The banker, who was not authorized to speak to the media, said the business could attract private equity or strategic buyers from Asia, among others. Other industry sources said Asian buyers could eye the golf business, which has been expanding in Korea and China.
The investment by Ackman, who is known for pushing for changes at companies, renewed speculation about a possible breakup, which has surfaced periodically in the past.
Fortune said it “found much strategic common ground” with Ackman.
“It’s not as if Bill Ackman came in with this epiphany of an idea of breaking the company up,” Gorham said. “I know they’d been thinking about it, I just don’t know that they were inclined to do anything about it until Ackman bought his stake.”
Ackman did not return a call for comment.
Deerfield, Illinois-based Fortune is the largest US-based spirits company, competing against Diageo, Pernod Ricard SA and privately held Bacardi.