Fortune Brands Inc. (NYSE: FO) is too small to be a conglomerate. It is, however, a small mix of unrelated businesses that have few synergies. It is almost a mini-me ‘General Eclectic.’ Not for long. The company has finally buckled to pressure to focus on core operations and it is going to split itself into three units rather than just one.
The move is creating a special situation investment which value investors and turnaround investors may be paying close attention to.
Fortune Brands’ board of directors has unanimously approved a break-up of its three consumer businesses. Its distilled spirits is the focal point, and it will either sell or spin-off its home and security unit and its golf products business.
Fortune Brands will continue as an independent and publicly-traded company which is focused entirely on the distilled spirits business. Fortune Brands is set to pursue a tax-free spin-off of its home and security business and that will be its own independent publicly traded stock company owned by Fortune Brands’ shareholders. The company’s golf business is set to either be sold to a buyer or it will also have a tax-free spin-off to Fortune Brands’ shareholders.
Bill Ackman of Pershing Square Capital Management may have much to do with this move. He took roughly an 11% stake to pressure the company to pursue this strategy. At the time, the company may have been reviewing that strategy but you can imagine that this push was the decisive catalyst that pushed a break-up of the company’s units.
Fortune Brands closed at $61.15 on Tuesday versus a 52-week trading range of $37.05 to $62.25 and its market cap is roughly $9.3 billion. For whatever it is worth, Fortune Brands was worth more than $80.00 per share back in 2007.
JON C. OGG
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