Brown-Forman’s $17bn bid rejection leaves a bitter taste
The Brown family may have balked at handing its brands over to Sazerac, but it would have been more appealing than the alternatives
Family-run businesses often have some clear advantages: the owners usually think long term and care a lot about the wellbeing of their company. Sometimes, as with distiller Brown-Forman, other investors might wish they paid more attention to what’s under their noses.
The Jack Daniel's maker has rejected a $32-a-share cash bid from private US spirits company Sazerac, maker of neon-coloured, spherical, ready-to-drink cocktails BuzzBallz. The offer, which valued Brown-Forman at $17bn including debt, looks reasonably attractive. It represented a roughly 36 per cent premium to the company’s share price on March 25, before news of any potential corporate activity leaked. It valued Brown-Forman at 19 times forward earnings, a fifth above industry leader Diageo.
Sazerac’s approach also looked more appealing than the alternatives available to Brown-Forman. It isn’t performing well as a standalone proposition: the company’s shares are down about 25 per cent over the past year and around two-thirds over the past five years. And a quickly abandoned tie-up with France’s Pernod Ricard, which had centred on a merger of equals, only offered its investors an 18 per cent uplift, Lex calculated, lower than the cash premium available on this deal.
But Brown-Forman is controlled by the Brown family, who may have had a number of reasons to turn down Sazerac’s offer. For one thing, they are unlikely to be interested in exiting the drinks business for cash: indeed, Sazerac apparently offered them the opportunity to take their consideration in stock. But that means that, unlike the other shareholders who would have to factor in nothing but price, the family would need to be comfortable with both the shape of the group that would emerge from a tie-up and their role in it.
On the former, there’s quite a lot of distance between Jack Daniel’s and BuzzBallz: the Brown family may have balked at the idea of placing its heritage brands in the hands of a company better known for its mass-market labels. And while the exact size of the shareholding the family was offered in the pro forma group is not known, it is likely that they would have ended up as minority shareholders in a private company.
It may also be that Brown-Forman is playing a canny negotiating game in rejecting Sazerac’s opening bid, hoping to extract a better offer. But it’s difficult to see how much further Sazerac could go. The $3.9bn premium it offered is akin to the lump-sum value it would generate by cutting Brown-Forman’s entire sales and marketing spend. The lesson may simply be that investments in family-led companies, like Buzzballz, are an acquired taste.