Japanese beverage company Suntory Holdings is set to acquire all outstanding shares of premium alcoholic spirits company Beam Inc for US$83.50 per share in cash or total consideration of approximately US$16 billion.

The deal is unlikely to have a significant impact on Beam’s products in Australia because of long-term distribution contracts in Australia between Beam and Coca Cola Amatil (CCA).

Australian Food news reported in March 2011 that Beam and CCA had signed a 10-year agreement, allowing CCA to continue the manufacture, sales and distribution of the Beam premium spirits portfolio — including Jim Beam, DeKuyper, Laphroaig, Maker’s Mark, Courvoisier, Canadian Club and Teacher’s.

Australia represents Beam’s second largest market in the world, with Jim Beam Bourbon taking the top spot in spirit sales, and Jim Beam and Cola topping the ready-to-drink sales.

Details of the Beam/Suntory deal

Beam’s deal with Suntory will include the assumption of Beam’s outstanding net debt. The transaction consideration represents a 25 per cent premium to Beam’s closing price of $66.97 on 10 January 2014, a 24 per cent premium to the volume-weighted average share price over the last three months and a multiple of more than 20 times Beam’s EBITDA for the 12 month period ended 30 September 2013.

The transaction, which has been unanimously approved by each company’s board of directors, is expected to close in the second quarter of 2014, subject to Beam stockholders’ approval, regulatory approvals and other customary closing conditions.

The deal will create a stronger global player in premium spirits, which both companies said will see annual net sales of spirits products exceeding $4.3 billion. Its combined portfolio of brands will include Beam’s Jim Beam, Maker’s Mark and Knob Creek bourbons, Teacher’s and Laphroaig Scotch whiskies, Canadian Club whisky, Courvoisier cognac, Sauza tequila, and Pinnacle vodka; and Suntory’s Japanese whiskies Yamazaki, Hakushu, Hibiki and Kakubin, Bowmore Scotch whisky and Midori liqueur.

Beam said the current Beam management team will continue to lead the business, which will be managed from Beam’s headquarters outside Chicago, Illinois.

“I am delighted that we can announce this agreement with Beam, a company with a portfolio of leading global brands, including Jim Beam and Maker’s Mark, and a strong global distribution network,” said Nobutada Saji, President and Chairman of Suntory’s Board.

“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,” Mr Saji said. “We are particularly excited about the prospect of working more closely with Beam’s excellent management and employees who will play an integral part in the growth of the business,” he said.

“Unparalleled breadth” in the fast-growing whisky category

Beam said the development will “deliver substantial value” for its stockholders and create a global company with “an excellent platform for future growth”.

“Together we will be a global leader in distilled spirits with the number three position in premium spirits and a dynamic portfolio across key categories,” said Matt Shattock, President and Chief Executive Officer of Beam. “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,” he said.

Beam said the combined global routes to market would expand the Beam and Suntory Holdings joint distribution footprint and that “innovation capabilities” developed by both companies would be an advantage.

“Backed by the expertise and the financial resources of Suntory, the people of Beam look forward to working with the Suntory team to continue outperforming our global market and to building on the proud traditions and deep heritage of our brands across all the major spirits categories,” Mr Shattock said.

On completion of the transaction, Suntory and Beam said they aim to achieve growth in markets worldwide, including the US, the world’s largest spirits market, by leveraging a combined portfolio of strong brands, an expanded distribution network and fully sharing production and quality control know-how.

Suntory and Beam already have a successful business relationship under which Suntory distributes Beam products in Japan and Beam distributes Suntory’s products in Singapore and other Asian markets.

Creating “substantial value” for Beam stockholders

Beam said the “attractive valuation” that has been achieved for Beam stockholders was the result of successful strategy and excellent execution by the global Beam team.

“Indeed, Beam will have achieved a total shareholder return of 106 per cent since Beam became a standalone spirits company in October of 2011,” said David Mackay, Beam Chairman.

Suntory intends to fund the transaction through a combination of cash at hand fully committed financing provided by The Bank of Tokyo-Mitsubishi UFJ. Mitsubishi UFJ Morgan Stanley is acting as exclusive financial advisor to Suntory and Cleary Gottlieb Steen and Hamilton LLP is acting as legal advisor. Centerview Partners and Credit Suisse are serving as financial advisors to Beam and Sidley Austin LLP is serving as legal advisor.

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