(Corrects last paragraph to say Fortune was advised by Credit Suisse, not Goldman Sachs)
NEW YORK - Fortune Brands Inc
Fortune's portfolio includes Jim Beam bourbon, Titleist golf balls and Moen faucets, brands with little strategic overlap, with 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 Brands said it had been considering a restructuring over the past four years as it weighed whether the businesses would be worth more on their own. It said now was a good time to do so as all of the units have 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 will complete these plans in the coming months.
What would remain is Fortune's 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
It's really only a matter of time before it gets acquired, said Morningstar analyst Philip Gorham, adding that the spirits business is likely to get the biggest premium of the three segments, due to its strong profit margins.
Fortune shares were up 1 percent at $61.80, outpacing a 0.1 percent decline for the wider stock market. They have gained 17.6 percent in the two months since Ackman's investment.
Gorham estimates that the current share price reflects a multiple of 13 times operating earnings for its spirits business, 12 times for home and security and seven times for golf.
NO ACKMAN EPIPHANY
The investment by Ackman, who is known for pushing for changes at companies, renewed speculation about a possible breakup, which has surfaced periodically in the past. Fortune said it found much strategic common ground with Ackman.
A tax-free spin-off was expected to be part of the company's approach, since selling brands outright could trigger hefty tax penalties, sources have said.
It's not as if Bill Ackman came in with this epiphany of an idea of breaking the company up, Gorham said. I know they'd been thinking about it, I just don't know that they were inclined to do anything about it until Ackman bought his stake, he said.
Ackman was not immediately available for comment.
Deerfield, Illinois-based Fortune is the largest U.S.-based spirits company, competing against Diageo, Pernod Ricard SA
Fortune's earnings declined in the past three years and its sales in the past two years, as the crash of the U.S. housing market curtailed demand for its windows, doors, cabinets and faucets and the recession capped consumers' discretionary spending on golf products and alcohol.
It is no stranger to deal-making. It bought more than 20 wine and spirits brands from Pernod Ricard in 2005 following the French company's acquisition of Allied Domecq, and sold its wine business in 2007 to Constellation Brands Inc
The company, formerly known as American Brands, dates back to 1985 but certain products have much longer histories.
Jim Beam dates back to 1795 when farmer and grain mill operator Jacob Beam came up with the recipe and distillation process for what is now a top-selling bourbon. Its Master Lock brand invented the laminated padlock in the 1920s.
Fortune was advised by Credit Suisse and Centerview Partners, said two sources familiar with the situation.
(Additional reporting by Soyoung Kim; Editing by Michele Gershberg, Lisa Von Ahn, Derek Caney and John Wallace)