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Published: Wednesday, 12/8/2010

Fortune Brands to shed 2 units, focus on spirits

NEW YORK -- Consumer products maker Fortune Brands Inc. plans to split into three companies, keeping its liquor business led by Jim Beam bourbon while shedding the units that make Titleist golf balls, Moen faucets, and Master Locks.

Fortune Brands said Wednesday it will focus on its spirits business, which generates annual revenue of $2.5 billion and also includes Canadian Club and Maker's Mark.

The home and security business, which also includes MasterBrand cabinets, will be spun off on a tax-free basis to shareholders. The golf business, which includes FootJoy shoes and gloves, will be either spun off or sold.

The announcement was made two months after activist investor William Ackman took an 11 percent stake in the company, becoming its largest shareholder.

Fortune Brands, based in Deerfield, Ill., said it expects to complete separation planning within several months. The separation is subject to conditions including regulatory approvals.

The company said the plan is the result of its ongoing strategic review over the past four years.

Fortune Brands was incorporated in 1985 but has its roots in the 19th-century American Tobacco Co., which acquired a variety of businesses over the years. It had sold off its tobacco businesses by 1997.

"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 at a time when they have emerged from the economic downturn in such strong positions," Bruce Carbonari, chairman and chief executive officer, said in a statement.

"We believe now is the right time to move ahead with this tax-efficient approach, and we're confident the course we've outlined today generates greater potential long-term value than all other alternatives."

Analysts had long argued that the company could unlock the value of its businesses by turning them into separate entities.

Dara Mohsenian, a Morgan Stanley analyst, said a split had been expected since Mr. Ackman took his stake.

But Philip Gorman, an analyst with Morningstar, said the timing of the news, so soon after Mr. Ackman's disclosure, suggests the company may have been considering the move previously.

Fortune had argued that the conglomerate format allowed it the financial flexibility to support the array of brands as business ebbed and flowed.

However, all of the company's brands struggled in the downturn, leaving little benefit to having three units that might fetch attractive bids on their own.

The company reported in its last quarter that its profit fell 17 percent because of one-time charges and the expiration of the home-buyer tax credit.

Revenue rose less than 1 percent.

"Overall, it just makes sense," Mr. Gorman said. "I'm slightly surprised by the speed, but not surprised."

Several analysts said Diageo or Pernod Ricard, neither of which has a strong bourbon brand, may consider a purchase of the spirits business.



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