People Will Never Stop Drinking: Wisdom of Jim Beam Deal

Companies and Brands

Published: January 14, 2014 6:36 am

Suntory, the Japanese brewer, spent $13.6 billion to buy Beam Inc. (NYSE: BEAM), the maker of Jim Beam. And the price will be paid in cash. People have consumed more whiskey in the past few years than in the recent past. Suntory’s risk is that the trend will decline. The wisdom of the deal is that people will always drink alcohol.

Most of the hottest companies today are in the tech world. Valuations of Google Inc. (NASDAQ: GOOG) and Apple Inc. (NASDAQ: AAPL) are often considered too high. In the short term, each has a chance to grow rapidly. A few decades from now, that is not certain. The tech world has a way of devouring its top companies. Just ask management of the oldest large websites, which have seen their advertising siphoned off by Facebook Inc. (NASDAQ: FB). Even the social network eventually will be replaced by another model — unless it can defy a trend that is nearly relentless.

Alcohol consumption preceded the drilling for and refining of oil. Exxon Mobil Corp. (NYSE: XOM) and its predecessors are a hundred years old. Energy experts argue that fossil fuels eventually will be replaced by solar, wind and efficient batteries. That process will take decades or longer. It may take until the end of the century. People will still be drinking alcohol then.

The Detroit Auto Show, which is going on now, is among the largest global exhibitions of new products from the world’s largest manufacturers. It is a reminder that car companies sold almost 16 million vehicles in the United States last year, more than that in China, and nearly as many as in the economically battered Europe. Maybe the automobile is a permanent part of the global consumer’s life, as cars become self-driving. Maybe General Motors Co. (NYSE: GM) will be in business for hundreds of years. At the end of that period, people will still be drinking.

The return on investment for the Beam deal may take longer than most people who calculate financial returns believe is reasonable. Suntory may have gotten a poor deal by that yardstick. However, it eventually will get a return, because the consumption of alcohol will outlast anything other than the consumption of food. So, not much will outlive either.

Suntory has moved further into a business that is as likely to be successful forever as almost anything else is.

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