Fortune Brands to Split Into Three
(Fortune Brands report updated with additional details.)
NEW YORK (
) --
Fortune Brands
( FO) confirmed reports early Wednesday that it will break itself into three separate companies.
The maker of spirits such as Maker's Mark bourbon whisky, Jim Beam and Effen Vodka, golf products under the Titleist brand, and home products like Moen faucets, said it will spin off its home and security division to shareholders in a tax-free transaction, try to sell or spin off its golf products business, and continue as a public liquor company.
Fortune Brands said early Wednesday it expects to complete development of these plans within the next several months.
"We are taking the next logical step in the evolution of Fortune Brands, which we believe will maximize long-term value for our shareholders and create exciting opportunities within our businesses," said chairman and CEO Bruce Carbonari.
The news came after hedge fund manager Bill Ackman, whose
Pershing Square Capital Management
owned a little less than 11% of Fortune Brands' outstanding stock, as of Oct. 8, reportedly ramped up pressure on the company to go this route over the past two months.
Shares of Fortune Brands, based in Deerfield, Ill., pushed up to a 52-week high of $62.44 Wednesday morning after closing down 30 cents at $61.15 on Tuesday. The stock has risen more than 40% so far in 2010, rallying since scraping a 52-week low of $37.05 on July 1.
The
Wall Street Journal
Tuesday quoted a source familiar with the situation as saying Fortune Brands was already thinking of pursuing some sort of break-up before Ackman's investment became known. Ackman was quoted by the
Journal
as saying the break-up plans were "phenomenal news."
Fortune said it "found much strategic common ground" with Ackman.
Fortune Brands said it had been considering a restructuring for four year, assessing whether its diverse range of businesses that bare little overlap would be more lucrative on their own.
"It's not as if Bill Ackman came in with this epiphany of an idea of breaking the company up," Morningstar analyst Philip Gorham told
Reuters
. "I know they'd been thinking about it, I just don't know that they were inclined to do anything about it until Ackman bought his stake."
Carbonari said that "while the breadth and balance of our portfolio have served shareholders very well, we see the potential for even greater value by separating our businesses into focused companies."
Fortune Brands said now is the time to go ahead with the restructuring since the U.S. has lifted itself out of recession.
As a publicly traded spirits company with $2.5 billion in annual revenue, Fortune Brands would continue to market and sell popular liquors such as Jim Beam and Effen Vodka, Maker's Mark and Sauza tequila.
Morningstar analyst Philip Gorham told
Reuters
he expects Fortune Brands will be ripe for acquisition once its other businesses are divested.
"It's really only a matter of time before it gets acquired," he said, adding that profit margins are strongest in Fortune Brands' liquor segment and is therefore likely to get the highest premium of the three.
Liquor company
Diageo
(DEO) - Get Report
could be a potential suitor for Fortune Brands since it does not have a marquis bourbon whiskey label on its roster.
Fortune Brands shares were downgraded to hold from buy last month by analysts at Argus Research. Longbow analysts downgraded the stock to neutral from buy in October. Robert W. Baird analysts downgraded the stock to neutral from buy, but raised their price target on the stock by $9 to $60.
-- Written by Miriam Marcus Reimer in New York.
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