Fortune Brands plans to sell or spin off the Acushnet Co., the parent company of the Titleist and FootJoy brands, company officials announced on Wednesday.
The move will come as Fortune Brands separates its three businesses “in order to maximize long-term value for shareholders,” officials said in a statement. The plan would result in the continuation of Fortune Brands as an independent, publicly traded spirits company; the tax-free spinoff to shareholders of the home and security business into an independent, publicly traded company; and the sale or tax-free spinoff of Acushnet.
THE SALE OF ACUSHNET
The sale of Titleist-FootJoy parent Acushnet marks a massive shift in the golf equipment industry.
Fortune Brands’ board of directors has instructed company officials to develop detailed separation plans -- including the structure, timing, and other related matters for each business -- within the next several months.
Speculation that Acushnet would be separated from Fortune Brands arose in recent weeks, when activist shareholder William Ackman revealed that his hedge fund had acquired an 11 percent stake in the company – making it Fortune Brands’ largest shareholder – and said he believed that the value of the three core businesses within Fortune would be worth much more if they were operated independently. If Acushnet is sold rather than spun off, potential purchasers could include other large golf companies, private equity funds or even large sporting gods companies.
Acushnet is the longest running success story in golf, and remains the largest and most profitable golf equipment company in the world with annual sales of $1.2 billion.
“The strength of the Acushnet Company as the undisputed global leader in the golf category, and confidence in our growth prospects, were factors contributing to the Board’s decision,” said Acushnet CEO Wally Uihlein. “Whether the Acushnet Company is sold to a new owner or becomes an independent publicly traded company, our focus will be to keep on doing what’s made us the leader in our industry -- the delivery of best-in-class products and service to our customers and golf consumers. We look forward to building on our track record of delivering performance and quality superior golf products to serious golfers worldwide.”
Acushnet was founded in 1910, and the first Titleist golf ball was introduced in 1935. Fortune Brands acquired Acushnet in 1976, and Acushnet acquired FootJoy in 1985. Acushnet’s net sales in 1975 were $51 million and in 2009 had grown to more than 20-fold that number. Over the past 75 years, the Titleist golf ball has become golf’s standard of excellence, while FootJoy has developed leading positions in the shoe, glove, sock and now outerwear categories.
“Throughout the history of both brands -- and the products and people that are the essence of the brands -- there have been any number of challenges and new opportunities, and there have always been shareholders that the business has been accountable to,” said Uihlein. “We have a strong history of rising to those challenges and taking advantage of those opportunities, while fulfilling our commitment to our shareholders.”
Under the plan, Fortune Brands would retain its wine and spirits unit, which with $2.5 billion in annual revenue, is the largest U.S.-based spirits company and the fourth largest premium spirits business in the world. Among its properties are the Jim Beam, Maker’s Mark and Knob Creek bourbon brands; Canadian Club whisky and Laphroaig and Teacher’s Scotch; the Sauza, Hornitos and El Tesoro tequila brands; Courvoisier cognac; and DeKuyper cordials.
The home and security unit, which like the golf business would be sold or spun off, contains MasterBrand Cabinets, which includes brands such as Aristokraft, Decora, Diamond, Omega and Kitchen Craft; Moen faucets; Therma-Tru doors and Simonton windows; Master Lock padlocks and Waterloo storage and organization products.
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,” said Chairman and CEO Bruce Carbonari 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. And Morgan Stanley analyst Dara Mohsenian said a split had been expected since Ackman took his stake. But Morningstar analyst Philip Gorman said the timing of the news, so soon after Ackman’s disclosure, suggests the company might have already been considering the move.
Fortune had previously 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 together that might fetch attractive bids on their own.
The company reported in its last quarter that its net income fell 17 percent because of one-time charges and the expiration of the homebuyer tax credit. Revenue rose less than 1 percent.
“Overall, it just makes sense,” Gorman said. “I’m slightly surprised by the speed, but not surprised.”
No one was immediately available at Pershing Square Capital Management, Ackman’s firm, to comment on the news. Ackman and Pershing have agitated for major changes at retailers he holds stakes in, such as McDonald’s Corp., Wendy’s International Inc. and Target Corp. Earlier this week Ackman, who has a 37 percent Stake in Borders Group Inc., made headlines by saying he would finance a Borders bid to acquire its larger rival Barnes & Noble Inc.
The Associated Press contributed to this report.