Suntory will acquire Beam for a reported $13.6 billion - an offer of $83.50 per share. That price was a 25% premium over Beam's closing price on Friday. The deal should be finalized in the second quarter of 2014.
When Suntory buys Beam, it will create the world's third-largest premium spirits company. Net sales of the combined company are estimated to exceed $4.3 billion annually.
"I believe this combination will create a spirits business with a product portfolio unmatched throughout the world and allow us to achieve further global growth," said Nobutada Saji, Suntory's chairman, in a prepared statement.
The transaction was unanimously approved by each company's board of directors.
"BEAM's portfolio is among the most concentrated among the publicly traded spirits companies in terms of its exposure to the fast-growing brown spirits categories (in particular bourbon)," Citigroup's Vivien Azer told Barron's. "Given bourbon's high barriers to entry (in addition to the healthy cost synergies that are historically seen for spirits M&A), the premium multiple makes sense to us."
Why Suntory Wants Beam (NYSE: BEAM)
As its namesake suggests, Jim Beam is the most notable product in Beam's portfolio. The liquor producer also owns Maker's Mark, Knob Creek, Courvoisier, Canadian Club, and Sauza.
While Suntory's most noteworthy products are Japanese whiskey, the company produces a variety of nonalcoholic beverages and food products as well.
Suntory may be best known stateside for its role in the 2003 film "Lost in Translation," in which Bill Murray famously acts as the company's newest spokesman. Adding numerous American spirits to its portfolio should change that.
The joining companies will lean heavily on each other to tap into their respective markets.
"With particular strength in Bourbon, Scotch, Canadian, Irish and Japanese whisky, the combined company will have unparalleled expertise and portfolio breadth in premium whisky, which is driving the fastest growth in Western spirits," Beam's President and Chief Executive Officer Matt Shattock said in a statement.
Importantly, Suntory and Beam are already distribution partners. Suntory distributes Beam products in Japan, and Beam has been responsible for distributing Suntory products in other Asian markets.
While takeover news can spark talk of a bidding war, D.A. Davidson's Timothy Ramey told Barron's there's good reason not to expect one:
"Suntory is Beam's distributor in Japan and so is a natural buyer. We don't see other buyers emerging at a higher price, and 20x EBITDA is certainly full," wrote Ramey.
Beam (NYSE: BEAM) Stock's Meteoric Rise
Beam became its own company in 2011, when Fortune Brands Inc. decided to split into three separate entities.
The move has paid off for Beam. The spirits company has seen its shares increase 106% since the breakup, according to the company's chairman, David Mackay.
Those that bought in on Beam stock Friday have already gained as much as 26% on their investment. The fact that shares are now trading close to Suntory's offer price suggests that shareholders see potential for an even higher offer down the line.
On the flip side, the last year hasn't been as kind to Suntory shareholders. Shares are down nearly 10% since reaching an all-time high in mid-July.
Shareholders hope that by tapping into western markets, Suntory stock will become much more profitable. The United States is the world's largest spirits market, and acquiring a company with name recognition like Beam is a big step forward for the Japanese company.
Beam (BEAM) stock was trading at $83.07 at 12:45 p.m. today.
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The Wall Street Journal:
Suntory Holdings to Acquire Beam for $13.6 Billion
Suntory's Beam Acquisition: Don't Expect a Bidding War