Suntory Holdings to buy Beam for $16bn

March 2014 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Japanese brewery Suntory Holdings Limited announced in January that the company had entered into a definitive agreement to acquire all outstanding shares of American drinks manufacturer Beam Inc for $16bn.

Both companies expect the transaction to close in the second quarter of 2014. The deal has been unanimously approved by each company’s board of directors, but is still subject to the approval of Beam’s stockholders’, the relevant regulatory authorities and other customary closing conditions. Suntory has announced that it intends to fund the acquisition with cash on hand and fully committed financing from Bank of Tokyo-Mitsubishi.

Under the terms of the deal Suntory will pay Beam’s shareholders $83.50 per share in cash, a 25 percent premium on the company’s closing stock price of $66.97 on Friday 10 January. The purchase price for Beam is more than 20 times the company’s earnings before interest, tax, depreciation and amortisation (EBITDA). Once the deal has been finalised, the newly combined company will have annual sales of approximately $4.3bn; indeed, the acquisition of Beam will elevate Suntory to the position of number three drinks maker in the world behind the UK’s Diageo plc and France’s Pernod Ricard by sales.

In a statement announcing the deal, Nobutada Saji, president and chairman of Suntory’s board of directors, said “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. 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. 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.” Once the transaction has been completed, Suntory will become the world’s third largest whiskey company and the fifth largest malt whiskey company by volume.

Beam will retain some degree of autonomy once the deal has been completed, with the company keeping its headquarters outside Chicago, Illinois. Beam’s president and chief executive Matt Shattock and the current Beam management team will continue to lead the business. “This is a very exciting development that delivers substantial value for our stockholders and creates an even stronger global company with an excellent platform for future growth,” said Mr Shattock. “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.”

The deal for Beam can be seen as the next phase in the storied history between the two organisations. Indeed, Suntory and Beam have enjoyed a successful business relationship for some time. Under a reciprocal agreement between the two companies Suntory has been distributing Beam’s products in Japan; in turn, Beam distributes Suntory’s products in Singapore and other important markets.

The acquisition of Beam comes shortly after Suntory completed its purchase of drug group GlaxoSmithKline’s soft drinks business, including the Ribena and Lucozade brands, for £1.35bn in the second half of 2013. Suntory’s decision to venture into other markets can be linked to wider trends at home in Japan. In many respects the company may be benefitting directly from the policy of Abenomics. With the yen weakening and interest rates currently low, it is relatively easy for Japanese firms to borrow money at home to pay for a deal and then use dollar-based revenues from abroad to pay for the debts accrued. Furthermore, the aging and shrinking Japanese population may also have led Suntory, and other Japanese firms, to look further afield for new opportunities.

Richard Summerfield