BEAM And Suntory Beverage Merger A Smooth Sail: RBC

BEAM And Suntory Beverage Merger A Smooth Sail: RBC

RBC Capital Markets analysts Nik Modi, Russell Miller, William Kirk and Nikhil Nichani raise BEAM Inc (NYSE:BEAM)’s price target to $83.50 as Suntory Beverage & Food Ltd (TYO:2587) announces the acquisition of all outstanding shares of Beam.

On news that Suntory Beverage & Food Ltd (TYO:2587) is purchasing BEAM Inc (NYSE:BEAM) for $83.50/share, with Board approval, we are raising our target to the takeout number. We believe the emergence of another bidder is unlikely at this time. Diageo plc (ADR) (NYSE:DEO) (LON:DEO) would see little accretion and Pernod remains too levered at this moment.

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Santory to acquire outstanding shares of Beam

This morning, Suntory and Beam jointly announced they have entered into a definitive agreement under which Suntory Beverage & Food Ltd (TYO:2587) will acquire all outstanding shares of Beam for US$83.50 per share in cash ($16 billion total consideration, a ~25% premium to Friday’s close), including the assumption of BEAM Inc (NYSE:BEAM)’s outstanding net debt. The transaction, unanimously approved by each company’s board of directors, is expected to close in 2Q14, subject stockholders’ approval and regulatory approvals.

Emergence of additional bidders unlikely

We believe another bidder entering the equation is unlikely. At $90/share, Diageo would get very little accretion from such a deal (assumptions: debt financed, 10% net sales synergies, 5% net interest), while taking leverage back over 4x. Additionally, there would be a $425m termination fee incurred by BEAM Inc (NYSE:BEAM). Pernod remains too levered (~3.6x) to do a deal of this size, today. Recall, our takeout math by brand resulted in a $90 takeout valuation, but would likely have required Diageo plc (ADR) (NYSE:DEO) (LON:DEO) and Pernod to divest some brands after completion of the deal.

Brown-Forman last Whiskey asset standing

While we don’t believe Brown-Forman Corporation (NYSE:BF.A) (NYSE:BF.B) is considering a sale, after BEAM Inc (NYSE:BEAM)’s takeout, it remains the last large American whiskey asset. Using today’s implied BEAM EV/EBITDA multiple (19.5x FY13), Brown-Forman would be worth $91/share.

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