Over the past weekend, bankers across the world worked hard to close some large deals, including that of Beam (BEAM). Investors stand to receive a great price for the company which is essentially a collection of premium bourbon brands, including Jim Beam.
Beam announced that it has entered into a definitive agreement to be acquired by Japanese Suntory Holdings (OTCPK:STBFY). Under terms of the deal, Suntory will pay $83.50 per share in cash for every share of Beam. This values Beam at $16 billion, including the net debt assumption of the firm. Beam's current net debt position is about $2.4 billion.
The suggested purchase price is generous, representing a 25% premium on top of Friday's closing price. The price tag is equivalent to 20 times trailing annual EBITDA for the period ending on September last year.
The deal has already been approved by the board of both companies. While the transaction is still subject to shareholder approval and other closing conditions, the deal is expected to close as soon as the second quarter of this year.
A More Dominant Player
The deal is huge, not just in terms of the reported value tag. The combination will create a global player in premium spirits with $4.3 billion in sales. Some of the prominent brands include Jim Beam, Maker's Mark and creek bourbons, among others.
Suntory is the owner of many Japanese premium whiskies including Yamazaki, Hakushu and Bowmore Scotch whisky. Founded in 1899, it offers both alcoholic and non-alcoholic beverages, generating sales of $17.6 billion in 2012. In this light, Beam is just a small firm, reporting annual revenues of nearly $2.5 billion in 2012. Earnings were solid at $382 million, as Beam reported fat after-tax profit margins of 15%. It is important to notice that margins on these premium alcoholic beverages are much higher.
Both companies see some potential for synergies, including shared distribution, production and innovation. Note that the amount of these synergies have not been specified.
Revenue synergies are expected with Beam offering strong brands and name appeal, while Suntory has a stronger financial position. As Beam already distributes Suntory's products in the wider Asia region, while Beam's products are being sold through Suntory in Japan, direct cost synergies will be limited. Note that Suntory has roughly 90% of its operations located in Japan.
Implications For Shareholders
Shareholders should be really happy with the deal fetching a nice 25% premium after shares have more than doubled since becoming a standalone company in October of 2011.
The multiple of 20 times EBITDA is quite rich, despite the renewed appeal of bourbon. With limited cost saving opportunities, this multiple is very rich and shareholders should applaud the deal. The deal comes as a surprise, as some players like Diageo (DEO) or Pernod (OTCPK:PDRDF) have been linked to Beam before.
As such I believe investors should be very happy with the value creating strategy and moves as made by management. Shareholders now have the chance to tender their holdings at a solid premium and fat multiples. With very low shots of competing offers coming in, I would tender my holdings or sell them close to the offer price during regular trading.