Beam's Vodka Shot Sobers M&A Speculation
"Pinnacle is an excellent strategic fit for Beam, giving us a strong and exciting growth platform in the sweet-spot of the attractive vodka category," said Matt Shattock, CEO of Beam in a statement. While the deal is valued at roughly 17 times White Rock's 2012 earnings before interest, taxes, depreciation and amortization, including synergies, Beam expects that the effective transaction multiple net of tax benefits will be "well below 10 times EBITDA."
Pinnacle vodka sells for roughly $14 a 750 ml bottle, a similar price scale to Constellation Brands (STZ) Svedka brand of vodka. The Calico Jack flavored rum line that Beam is picking up prices for slightly less at $11 per 750 ml bottle.
"Both brands fit into Beam's flavor expertise and innovation strengths and are positioned at 'affordable' price points," wrote Bank of America Merrill Lynch analyst Bryan Spillane in a Monday note. "We believe that distribution for these brands was spotty nationally, providing opportunity for volume growth in Beam's distribution system," adds Spillane, who expects that Beam will be able to return above its cost of capital on the acquisition.
Beam expects to see cost synergies exceed 20% of White Rock's future sales, netting up to 10 cents in 2013 earnings per share gains by wrenching out synergies in its supply chain, overhead and procurement, the company said in a statement. The Deerfield, Ill- based company also said it will finance the cash deal with its existing credit facilities and new debt, or a combination of both.
At the Value Investing Congress in October 2011, Ackman revealed that he would be doubling down on Beam and its former parent Fortune Brands after their split into separate companies. Presently, Ackman owns over 13% stakes in Beam and Fortune Brands Home & Security, investments that target a recovery in discretionary consumer spending and home sales.
Fortune Brands Home Security operates the Moen faucets and Kitchen Craft cabinetry furnishings brands to go with its Simonton windows, Master Lock Security and Waterloo storage units.