By James Atkinson
Suntory’s proposed acquisition of Beam will have limited medium term ramifications for Beam’s distribution in Australia, where the North American company has a freshly inked distribution deal with Coca-Cola Amatil (CCA).
CCA recently announced a new 10-year term on the Beam partnership agreement, which does not expire until 2023.
Industry observers commented that while the renewal was fortunate timing for CCA, the arrangement may also suit Suntory, which would have had to scale up its distribution considerably in order to service customer demand for Beam’s large volume products, such as Jim Beam RTDs.
“Even if the CCA deal was due to get renewed next year, you wonder whether Suntory would have continued with it regardless,” said one analyst.
However, the analyst suggested that Suntory may seek to negotiate for CCA to relinquish some of Beam’s premium spirits brands that may not have fared as well under the agreement.
“If you look at Brown-Forman, I think they’ve done a far superior job with their premium products because they control their own distribution and they put more focus on those brands,” he said.
Both Suntory Australia and Beam Global Australia declined to comment on the local ramifications of the deal.
‘Take the money and run’
Overseas analysts were unanimous in advising investors to snap up the offer.
“We believe that Beam shareholders are getting an attractive price for their shares, as the over 20x EBITDA multiple stands at the high end of historical precedent transactions,” wrote Citi Research vice president Vivien Azer.
Bernstein analyst Trevor Stirling told UK publication just-drinks that the EBITDA multiple to be paid by Suntory was “way up there” with the record 20.8-times paid in 2008 by Pernod Ricard for Absolut Vodka owner Vin & Sprit, “which arguably had a stronger portfolio that Beam does”.
The analyst added that if he were a Beam shareholder, “I'd take the money and run”.
Stifel's Mark Swartzberg, meanwhile, pointed out that the deal would take Suntory from a standing start in the US to an immediate big player in the country's spirits market, just-drinks reported.
“Suntory has virtually no US presence,” Swartzberg reportedly said in a note. “This will take their share from less than one per cent to eleven per cent and also make them a major in bourbon with an approximate 33 per cent share of the category.”
Citi’s Vivian Azer said the premium multiple made sense, given bourbon's high barriers to entry, in addition to the healthy cost synergies that are historically seen for spirits mergers and acquisitions.
While Diageo and Pernod-Ricard have previously been linked to the Beam assets, Azer said there are now limited chances of another buyer emerging given that the Suntory offer has approval by both boards and there is now a $425 million termination fee attached to it.