Fortune shares jump after Pernod bags V&S

NEW YORK (Reuters) - Fortune Brands Inc FO.N shares jumped more than 8 percent on Monday after the U.S. spirits company lost an auction for Absolut vodka maker Vin & Sprit VSG.UL and said it would begin buying back its own shares.

Fortune, which was outbid by French rival Pernod Ricard (PERP.PA), said it authorized the repurchase of up to 15 million shares of its stock -- which had dropped 26 percent through Friday's close since August due, in part, to uncertainty about how buying Vin & Sprit would hurt earnings.

Barrington Asset Management analyst Alex Paris said Fortune "removed one uncertainty" -- about the possible acquisition-related earnings hit -- and "added a positive certainty" in buying back shares at an attractive price.

Paris said buybacks are part of Fortune's regular strategy, though the maker of Jim Beam Bourbon and Sauza Tequila had recently slowed the pace in order to prepare its balance sheet to buy the Swedish state-owned spirits company, which analysts had estimated would fetch $6 billion to $7 billion.

Pernod won the auction with a bid of 5.63 billion euros ($8.9 billion).

Absolut, which sold 10.7 million 12-bottle cases last year, is the jewel in the V&S crown, which also includes smaller brands like Cruzan rum and Plymouth gin.

But with a recession looming over the economy of the United States, where Absolut sells nearly half its volume, sales could slow.

"People can easily shift from Absolut to something else. I don't think there's a huge difference, in my opinion, between vodkas," said Paris. "And to have to pay that much for essentially one brand was a little disturbing to me."

At $8.9 billion, which values V&S at 20.8 times 2007 gross operating profit, Fortune said it had not seen "appropriate return" for its shareholders.

"While we had hoped to purchase Absolut at the right price, we didn't hesitate to put our shareholders' interests first," Fortune Chief Executive Bruce Carbonari said in a statement.

BY THE NUMBERS

Carbonari said Fortune made a careful evaluation of factors such as the Swedish vodka maker's growth and returns prospects, current currency exchange rates and capital markets, and alternative uses of its financial resources.

Fortune also said it would start the buyback of a 10 percent stake in its Beam Global spirits business, currently held by Vin & Sprit.

In its latest annual report, Fortune valued that stake at $542.9 million.

Fortune's Beam subsidiary is party to an agreement to distribute Absolut in the United States into 2012 through a majority-owned joint venture with Vin & Sprit, called Future Brands. Absolut is also part of the Maxxium international distribution venture, in which Fortune is a partner.

Fortune said it plans to continue distributing Absolut in the U.S. through 2012, though analysts said Pernod would likely seek to untie the deal and pay some kind of penalty.

"Future Brands JV is likely to be unwound, it's just a matter of when and at what cost," wrote Bank of America analyst Bryan Spillane in a research note.

Spillane had previously estimated the loss of Vin & Sprit to another company would reduce Fortune's annual earnings by 33 cents per share, but he revised his outlook on Monday.

"The net strategic result of the transaction is negative, as Fortune loses scale and there will ultimately be some earnings hit," Spillane wrote. "However this is moderated by the likely staggered timing of the events over what could be a couple years, as well as the share repurchase authorization."

Citing "protections in its spirits joint ventures," Fortune said it expects no adverse earnings impact in the near term.

Standard & Poor's Ratings Services reaffirmed its BBB rating on Fortune's debt on Monday, citing the likelihood that Fortune buys back shares over time, thereby keeping its credit measures in expected ranges.

Fortune shares were up $5.51, or 8.6 percent, at $69.37 in afternoon trading on the New York Stock Exchange. The shares have traded in a 52-week range of $62.50 to $90.80. Pernod shares fell over 4 percent in Europe.

($1=.6338 Euro)

(Reporting by Johannes Hellstrom and Niklas Pollard in Stockholm and Martinne Geller in New York; Editing by Brian Moss and Gerald E. McCormick)