April 23, 2012 / 11:50 AM / in 6 years

UPDATE 3-Beam to sweeten portfolio via Pinnacle vodka buy

* Beam to buy Pinnacle, Calico Jack for $605 mln

* Deal does not make Beam less attractive-analysts

* Beam shares down more than 2 pct

By Martinne Geller

April 23 (Reuters) - Beam Inc is buying whipped cream-flavored vodka maker Pinnacle for $605 million, the company said on Monday, in a bid to sweeten a portfolio heavy on bourbon whiskey.

Yet shares of Beam, which is often viewed as a takeover candidate itself, fell more than 2 percent in afternoon trading.

SunTrust Robinson Humphrey analyst William Chappell said some investors might view the acquisition as a sign that a takeover of Beam is less likely.

“But we believe this deal would only enhance its attractiveness to potential suitors,” Chappell said, reiterating his “buy” rating on Beam shares.

Beam is the top maker of bourbon whiskey, with brands including Jim Beam, Maker’s Mark and Knob Creek. But it only has small vodka brands -- Pucker and Effen -- meaning it has no sizeable competitor to Diageo’s Smirnoff and Pernod Ricard’s Absolut in the largest category of spirits.

Vodka accounted for nearly a third of all spirits volume sold in the United States last year, and grew faster than the industry average, according to the Distilled Spirits Council of the United States, a trade group.

Pinnacle sells unflavored vodka, but is perhaps better known for its unusual dessert-inspired flavors. It is the fourth-largest imported vodka brand in the United States, and Beam said it is expected to sell more than 3 million cases this year.

Beam became a pure-play spirits company late last year after being separated from Fortune Brands. Even though company executives have repeatedly said they’re focused on running the company independently, Beam is seen as an attractive target, especially for Diageo, which only has one small bourbon brand.

JP Morgan analyst Neal Rudowitz said he does not think Monday’s deal would change the thinking of any potential suitor, since they might likely shed other Beam brands anyway. Beam’s other brands include Sauza tequila, Courvoisier cognac and Cruzan rum.

Rudowitz suspended his rating and price target on Beam since JP Morgan advised the seller, White Rock Distilleries, on the deal.


Beam said the deal, which also gives it Calico Jack rum, would not affect 2012 earnings, but would add 5 cents to 10 cents per share in 2013. It should add more than that in 2014 and beyond, the company said.

The purchase price, to be funded by cash and debt, represents a multiple of 20 times projected 2012 earnings before interest, tax, depreciation and amortization (EBITDA), excluding expected tax benefits. Net of those benefits, the multiple is closer to 17 times EBITDA.

“While the multiple is at the higher end of the range of historical spirits acquisitions, the brand is one of the fastest growing vodkas in the U.S.,” said JP Morgan’s Rudowitz.

After anticipated cost savings of more than 20 percent of the brands’ net sales, the purchase price will reflect a multiple of less than 10 times EBITDA, Beam said.

Beam shares were down 2.2 percent at $55.79 on the New York Stock Exchange.

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