Fortune Brands Unit Eyed by Private Equity: Reports

DEERFIELD, Ill. ( TheStreet) -- Private equity firms such as Blackstone Group ( BX) and Bain Capital may be making a play for Fortune Brands' ( FO) home products unit, according to reports.

Fortune Brands confirmed in early December that it will break itself into three separate companies , hoping to spin off its home and security division to shareholders in a tax-free transaction, sell or spin off its golf products business and continue as a public liquor company.

A tax-free spinoff of Fortune Brands' home products unit, Fortune Brands Home & Security, to shareholders would offer preferable long-term value than other divesting alternatives, said Fortune spokesman Clarkson Hine.

Selling to buyout firms would lead Fortune Brands to incur heavy taxes. Bidders would have to assume a recovery in the economy and housing market and use that assumption for valuation of the home products unit, according to sources who spoke anonymously to Reuters.

The housing market has not yet fully recovered from the recent economic downturn. New-home sales rose 5.5% in November but remained 21.2% below year-earlier levels, meaning demand for many of the household products Fortune Brands Home & Security sells, such as windows, cabinets and faucets, also remains sluggish.

Fortune Brands Home & Security earned $350 million in 2010, before interest, taxes, depreciation and amortization, but the line item is expected to grow above $400 million this year, sources told the newswire.

"The board would tell you 'Don't look at 2010.' That's why the math gets tough because the sponsors have to put a much bigger price on it and that affects their returns on the equation," one of the sources said.

"The company is pretty well positioned to capture the recovery in the economy and the board of directors at Fortune would want full value for the asset."

The sources said strategic bidders, or competitors to Fortune Brands Home & Security in the home products sector, are unlikely to step forward.

Sources said a tax-free spinoff remains the most likely outcome. "Part of the reason they are doing it as a spin off is that the tax leakage is pretty sizable," one of the sources said. "I also think that it's probably not the best time in the world to run a process to sell a building products business."

"Although there is some interest from sponsors to do an leveraged buyout in building products, that's a pretty heavy one to do," the same person told Reuters.

Fortune Brands Home & Security's brands include Moen faucets; Aristokraft, Omega, Diamond and Kitchen Craft cabinetry; Therma-Tru door systems; Simonton windows; Master Lock padlocks and Waterloo storage products.

As the largest U.S.-based spirits company, Fortune Brands competes with Diageo ( DEO), Pernod Ricard and Bacardi.

Fortune Brands shares bid up 2.4% to $61.76 on Thursday amid heavier-than-normal volume. More than 1.5 million shares changed hands just over half way through the day's session, compared with their average daily trading volume of 1.1 million.

American depositary receipts of Diageo added 1.5% to $75.74 while pink sheets of Pernod fell 2.7% to $17.80.

Wine and spirits maker Constellation Brands ( STZ), the distributor of Robert Mondavi wine, Svedka vodka and Corona beer, saw its shares tumble 6.5% to $20.17.

Constellation Brands said early Thursday it more than tripled its quarterly earnings and lifted its full-year profit guidance, but investors focused instead on its 2% dip in revenue to $966.4 million, reflecting a 3% decrease in wine sales. Wine sales make up about 90% of Constellation's revenue.

-- Written by Miriam Marcus Reimer in New York.

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