By Martinne Geller and Olivia Oran
LONDON/NEW YORK (Reuters) - Suntory Holdings Ltd on Monday said it would buy U.S. spirits company Beam Inc for $13.6 billion cash in a deal that would make the Japanese company the world's third-largest spirits maker.
Including the assumption of Beam's net debt, the deal is valued at $16 billion. It brings together Beam's Jim Beam and Maker's Mark bourbons, Courvoisier cognac and Sauza tequila with Suntory's Yamazaki, Hakushu, Hibiki and Kakubin Japanese whiskies, Bowmore Scotch whisky and Midori liqueur.
Once the acquisition is completed, Suntory will become the third largest whiskey company and the fifth largest malt whiskey company by volume, according to International Wine & Spirit Research.
The deal is the latest example of how Japanese beverage companies are seeking to quench their thirst for overseas growth as the population in their home market shrinks.
"All Japanese beverage companies have been focused on getting growth outside Japan," said Bernstein Research analyst Trevor Stirling.
The deal boosts Suntory's market share in the U.S. to 11 percent from less than 1 percent, according to Stifel Nicolaus analyst Mark Swartzberg.
The proposed acquisition is also Japan's third-largest announced outbound deal of all time, according to Thomson Reuters data.
Last year, privately held Suntory floated its food and non-alcoholic drinks company, Suntory Beverage & Food, to raise money for overseas acquisitions. Kirin Holdings Co bought control of Brazil's Schincariol for $2.6 billion in 2011, and Asahi Group Holdings took a stake in Chinese brewery Tsingtao in 2009.
ACKMAN WINS BIG
One of the biggest winners in the Suntory deal will be Pershing Square Capital Management. The $12 billion hedge fund owned by William Ackman owned 12.8 percent, or 20.8 million shares, of Beam at the end of the third quarter.
At that time, Beam was Pershing's third-biggest position, and it has helped boost the hedge fund's performance in a year overshadowed by a $500 million loss on J.C. Penney Co Inc and climbing losses on Herbalife Ltd.
Pershing Square first invested in Fortune Brands in October 2010. The company then sold its golf business, which included Titleist golf balls, and spun off its home supply products including faucet maker Moen and MasterBrand Cabinet. The name of the remaining company was then changed to Beam.
Ackman declined to comment on the deal with Suntory.
Suntory said on Monday that it would pay $83.50 per share in cash, a 25 percent premium to Beam's closing stock price of $66.97 on Friday. Beam shares closed up 24.6 percent at $83.42 on Monday.
The purchase price is more than 20 times Beam's earnings before interest, tax, depreciation and amortization, a multiple that comes close to the record 20.8 times EBITDA that Pernod Ricard paid in 2008 for the maker of Absolut vodka.
But unlike the Absolut acquisition, there are few cost-saving opportunities in Monday's deal, Stirling said, since more than 90 percent of Suntory's business is in Japan, and the Beam business will continue to operate in the United States.
If the deal falls through, Beam must pay Suntory a $425 million termination fee.
The deal between Suntory and Beam came together quickly - in less than two months, according to a person close to the transaction.
Analysts believe a counterbid by the likes of larger rivals Diageo Plc or Pernod is unlikely, citing the deal's high multiple, termination fee and approval by both boards.
Suntory already distributes Beam products in Japan, and Beam distributes Suntory's products in Singapore and other Asian markets.
Suntory already has a portfolio of Japanese whiskies and one Scotch that are strong in its home market, but the acquisition of Beam gives it bourbon, Scotch, Irish and Canadian whiskies and access to a stronger distribution network not just in the U.S. but in key emerging markets such as India, Russia and Brazil.
The combined company will have annual sales of about $4.3 billion.
Beam has been viewed as an attractive takeover target since becoming a stand-alone public spirits company in October 2011. Analysts and bankers long speculated that its range of bourbons would fit nicely into Diageo's portfolio, which has many Scotch whiskies but only one bourbon.
So-called brown spirits, like whiskey, have experienced a resurgence in recent years, helped by the growing popularity of classic cocktails. U.S. sales volume of bourbon and Tennessee whiskey have grown 13.2 percent in the five years to 2012, according to the Distilled Spirits Council of the United States. Super-premium brands have grown nearly 80 percent over the same period.
Suntory intends to fund the acquisition with cash on hand and fully committed financing from Bank of Tokyo-Mitsubishi UFJ.
Financial advisers in the deal are Mitsubishi UFJ Morgan Stanley for Suntory and Centerview Partners and Credit Suisse for Beam.
Legal advisers are Cleary Gottlieb Steen & Hamilton LLP for Suntory and Sidley Austin LLP for Beam.
(Reporting by Martinne Geller in London and Olivia Oran in New York; Additional reporting by Svea Herbst in Boston; Editing by Greg Mahlich, David Evans, Lisa Von Ahn and Bernard Orr)