Business Blog Posts

Fortune owns Jim Beam bourbon, Titleist golf balls and Moen faucets -- brands with little strategic overlap -- and has a market capitalization of $9.3 billion. In October, Ackman's Pershing Square Capital Management became its largest shareholder after buying an 11 percent stake.

Fortune would keep the spirits business, the world's fourth-largest, with $2.5 billion in annual revenue and brands like Sauza tequila and Maker's Mark bourbon.

Analysts say it would be an attractive takeover target, especially for top player Diageo Plc (DGE.L), which lacks a large bourbon whiskey. According to Reuters Breakingviews, applying a multiple of 15 times operating earnings for the spirits business alone would yield a price tag of $10 billion.

"It's really only a matter of time before it gets acquired," said Morningstar analyst Philip Gorham.

Fortune Brands said it had been considering a restructuring over the last four years as it weighed whether the businesses would be worth more on their own. It said now was a good time, as all the units emerged from a U.S. economic downturn in better shape than expected.

"While the breadth and balance of our portfolio have served shareholders very well, we see the potential for even greater value by separating our businesses into focused companies," said Chief Executive Bruce Carbonari in a statement.

Fortune will spin off its home and security unit to shareholders in a tax-free transaction, and either sell or spin off its golf business, the world's biggest. It plans to complete plans for these actions in the coming months.

FOR-SALE SIGN

Last year, spirits made up more than three-quarters of total operating profit but only 37 percent of sales. Demand for drinks was dampened by the recession, but the unit's resiliency relative to the others helped Fortune in the recession.

Even though Fortune said it plans to spin off the home unit, one banker familiar with the situation said the move was "tantamount to putting up a 'for-sale' sign" on the business, which includes Aristokraft cabinets and Therma-Tru doors.

The banker, who was not authorized to speak to the media, said the business could attract private equity or strategic buyers from Asia, among others. Other industry sources said Asian buyers could eye the golf business, which has been expanding in Korea and China.

Fortune shares were up 0.9 percent at $61.71 in late afternoon trade on Wednesday, outpacing a 0.2 percent increase for the wider stock market. Fortune shares have gained 17.6 percent in the two months since Ackman's investment.

While analysts see the breakup as a good deal for shareholders, the impact on bondholders is less clear. Research firm Gimme Credit downgraded its credit score on Fortune to "deteriorating."

"In order to preserve investment grade credit quality, we believe the company will need to use some of the cash to pay down a meaningful amount of debt, not simply hand it all over to shareholders," Gimme Credit analyst Carol Levenson said in a note to clients.