Fortune to end Absolut venture and buy Cruzan
CHICAGO (MarketWatch) — Fortune Brands’ Beam Global will end its joint venture deal to distribute Absolut vodka in the U.S., turning over sole responsibility for the top-selling brand to new owner Pernod Ricard while also buying Cruzan rum and netting about $130 million in cash on top.
After the close of trading Thursday, Fortune announced the pact, which will accelerate the termination of the joint venture to distribute Absolut vodka here — originally slated to end in 2012 — to Oct. 1 in return for $230 million in cash. In addition, Beam will buy Cruzan from Pernod for $100 million.
For Pernod, the move gets it total control over the marketing and distribution of Absolut, which is both the No. 1 imported spirit and premium vodka here while also disentangling itself from a complex profit-sharing agreement with a top competitor. For its part, Fortune gets a fast-growing rum brand at a deep discount, filling a hole in its portfolio, and a tidy sum of cash that could be used to help build its new acquisition and seek further ones — or both.
The deal comes about six months after Fortune backed away from buying Sweden’s V&S — the parent of Absolut — after the bidding soared to dizzying heights. Pernod Ricard (FR:012069: news, chart, profile) eventually won that battle, forking over almost $9 billion for V&S.
Fortune has been focusing more heavily on its spirits unit in the past few years as the U.S. housing crunch began to bite into its once-robust home business, whose brands include Aristokraft cabinets and Moen faucets. In 2005, it bought Courvoisier cognac, Sauza tequila and a handful of other brands form Pernod for $5 billion as part of the breakup and sell-off of Allied Domecq.
The joint venture dates back to 2002, when Fortune and V&S formed Future Brands to distribute Absolut, along with other Beam spirits brands, in the U.S.
Today’s “transaction serves shareholders significantly better than allowing the distribution partnership to expire in 2012,” said Bruce Carbonari, Fortune’s chief executive, in the announcement. “The termination payment from Pernod more than compensates for our higher costs of distribution over the remaining term of the joint-venture agreement.”
Further, “we’ll also benefit from a dedicated U.S. sales force” and get “significant upside potential over the long term from the Cruzan Rum brand.”
The company already owns Ron Rico, a bottom-shelf rum brand with limited distribution and even less marketing support. But Cruzan is the fifth largest rum brand in the U.S., with worldwide annual sales of about $50 million and volume of 750,000 cases; it enjoyed double-digit growth in 2007 and will be the company’s flagship offering in the category.
And Fortune is getting it for a bargain: V&S paid about $200 million for Cruzan just three years ago.
Fortune said it expects a net gain of $1.18 per diluted share — approximately $180 million after taxes — in the third quarter resulting from the cash payment from Pernod Ricard, a remaining unamortized gain from V&S’s initial investment in the joint venture, and restructuring charges associated with the realignment of its sales organization.
For his part, Pernod Chairman Patrick Ricard said in that company’s news release that the immediate takeover of Absolut distribution in the U.S. “greatly enhances our position” and makes the company North America’s “clear” No. 2 in spirits.