Beam Inc. (NYSE:BEAM), a leading global premium spirits company, today announced a definitive agreement with White Rock Distilleries to acquire the fast-growing Pinnacle Vodka and Calico Jack rum brands and other related assets for $605 million in cash.
“Pinnacle is an excellent strategic fit for Beam, giving us a strong and exciting growth platform in the sweet-spot of the attractive vodka category,” said Matt Shattock, president and chief executive officer of Beam. “With the synergy-driven addition of Pinnacle, which will become one of our largest Power Brands, Beam will further enhance its ability to maximize value for shareholders.”
Strong Growth Brand in the Large and Attractive Vodka Category
Pinnacle Vodka, with 2012 volumes expected to exceed 3 million 9-liter cases, will significantly enhance Beam’s presence in the large, growing vodka category. With a sustained track record of very strong double-digit growth, Pinnacle has already become the fourth largest imported vodka brand in the United States.
Pinnacle’s growth is broad-based across its product line, as its unflavored and flavored variants have each achieved the one-million case threshold. Pinnacle’s classic unflavored vodka was the U.S. market’s fastest-growing non-flavored imported vodka in 2011, and Pinnacle has also pioneered the most exciting flavors in the vodka category, including the outstanding success of the Pinnacle line of Whipped dessert-flavored vodkas. Pinnacle’s track record of successful flavor innovation places the brand at the core of the category’s growth, as flavors generate the vast majority of vodka’s growth in the U.S. “The team at White Rock has really built something special with Pinnacle. Whether it’s Pinnacle’s classic unflavored vodka or the dynamic flavor innovations, consumers love this brand, its fun image, and its affordable premium price point,” said Shattock. Pinnacle sells at a suggested retail price of $12.99-13.99 per 750ml bottle.
Paul Coulombe, CEO of White Rock Distilleries, said: “We’ve built Pinnacle into the fastest-growing spirits brand in the U.S., and I’m pleased to see it find a home at Beam, a fast-growing spirits leader committed to building great brands. I’m confident the team at Beam will utilize their tremendous reach, scale and passion to take Pinnacle to even greater heights and establish it as one of the spirits industry’s truly iconic vodka brands. Everyone at White Rock can be very proud of what we’ve built and very excited about where Pinnacle is headed in the future.”
“We’re continuing to invest smartly in great brands and attractive categories, and Pinnacle plays to our strengths,” Shattock continued. “With our plans to substantially increase brand investment in Pinnacle, plus our marketing and innovation capabilities and our global distribution assets, we look forward to taking Pinnacle to the next level and establishing Beam as a leader in the sizeable vodka category. Since the start of 2011, we’ll have built our presence in Ready-to-Serve Cocktails, Irish Whiskey and now Vodka with another bolt-on acquisition that will leverage substantial brand-building, distribution and cost synergies to deliver highly attractive growth and returns for our shareholders.”
Accretive to EPS in First Full-Year; Powerful Synergies Expected to Help Drive Internal Rate of Return in Excess of Risk-Adjusted Cost of Capital
The company estimates the acquisition will be approximately neutral to 2012 EPS before charges/gains, and accretive by $0.05 to $0.10 per share in 2013, with increasing accretion in 2014 and beyond. Beam has identified significant potential cost synergy opportunities – expected to exceed 20% of the brands’ net sales – particularly from leveraging Beam’s U.S. distribution and supply chain scale, procurement benefits and overhead efficiencies.
Driven by the strong growth outlook for the brands and meaningful cost synergies, the company anticipates generating an internal rate of return substantially in excess of the double-digit risk-adjusted cost of capital for the transaction.
Net of the transaction’s expected tax benefits associated with the purchase of assets, the effective purchase price values the brands at approximately 17 times projected 2012 standalone EBITDA (or 20 times EBITDA excluding tax benefits). Including expected run-rate cost synergies, the effective transaction multiple net of tax benefits would be well below 10 times EBITDA. Beam expects to finance the acquisition with either existing credit facilities or new debt, or a combination of both. The acquisition, which is subject to customary closing conditions and regulatory approvals, is expected to be completed in the second quarter of 2012.
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