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Analysts See Bidding War For Beam As Unlikely

January 14, 2014

Following yesterday’s blockbuster announcement that Suntory has agreed to acquire Beam Inc. for $16 billion (including $2 billion in debt), the general consensus among analysts is that the high multiple offered, a termination fee included in the deal and other factors make the prospect of a fierce bidding war for Beam unlikely.

Suntory’s offer equates to about 20 times EBITDA, a multiple far beyond the median of 13.8 times EBITDA for wine and spirits acquisitions since 2004, according to data compiled by Bloomberg. Several analysts declared the price a fair value for Beam, with the robust number taking into account the high barrier to entry in the thriving Bourbon business, in which Beam plays a major role through its Jim Beam, Maker’s Mark and Knob Creek brands among others. Beyond the high multiple proposed, there’s also a $425 million termination fee written into Suntory’s offer, which has already been approved by both companies’ boards.

A year ago it looked like Beam’s strong positions in Bourbon with Jim Beam and Tequila with Sauza made it a ripe takeover target for Diageo, but Beam’s share price rose by around 12% over the past year, making it a significantly more expensive proposition. Yesterday, Beam closed up 25% to $83.42 a share, just below Suntory’s offer price.

Meanwhile, Diageo has revved up marketing for its own Bulleit Bourbon brand of late and inked a deal to jointly acquire DeLeón Tequila with Diddy, signaling that it has plenty of options as it looks to increase its exposure to those two rising categories. Following the DeLeón deal last week, Diageo North America president Larry Schwartz told SND that more Tequila moves were possible. For now, analysts seem to believe a last-ditch effort for Sauza won’t be one of them.

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