It would seem that Diageo may well be a strong contender in a bid to acquire Fortune Brands Inc US spirit business. Due to activist shareholder William Ackman’s new 10.9% stake in Fortune as from November 2010, it is looking increasingly likely that the US conglomerate may be pressed into splitting up their current repertoire of spirits, golf equipment and home products.
Diageo would have to be the leading candidate if the spirit section does come onto the market. With one of the biggest American whisky’s – Jim Beam (the world’s number one Kentucky bourbon), and one of the current fastest growing – Maker’s Mark – this would surely fill the gap in its current portfolio of spirits and bolster its foothold in the US whisky market.
However, if Diageo did go ahead with the purchase, this could cause on-going repercussions. Analyst Simon Hales of Evolution Securities says ‘We believe Diageo may either try to cherry pick brands in any break-up, like Jim Beam and Maker’s Mark, or seek to acquire the business in combination with another player and then split the assets.’ If Diageo become known for these kind of tactics it is sure to create a feeling of mistrust within the industry and may well effect their standing in future purchases.
Fortune also owns Courvoisier Cognac and Sauza Tequila, and is the fourth largest spirit group globally, with Diageo being number one. Financially, Fortune’s spirit unit is in good shape. In 2009 its turnover was jus under $2.5 billion.
The acquisition of Fortune would propel Diageo further forward in terms of size and turnover, leaving all of its competitors trailing in its wake: Pernod Ricard being its closest rival. Currently Diageo is a relatively small player in the US whisky market, but the purchase of Fortune would definitely change that.
Sources: uk.reuters.com, www.just-drinks.com, uk.finance.yahoo.com