Another bidder for Brown-Forman emerges; Bitcoin's founder may have been identified; Another travel hack
1) Shares of spirits maker Brown-Forman (BF-B) surged 12.9% yesterday on news that another possible acquirer had emerged – alcoholic beverage company Sazerac.
Longtime readers may recall that I've written many times about Brown-Forman, most recently two weeks ago, after news broke that French wine and spirits maker Pernod Ricard (RI.PA) was "in talks" to merge with the company.
I concluded that "the deal makes sense" and "I'm finally intrigued" by the stock, but "would only want to invest if the merger goes through. So I'm going to wait and see if it happens." With a new player on the scene, I think the stock is even more interesting.
Here's a Wall Street Journal article on Sazerac approaching Brown-Forman about a potential deal, with some background on both companies:
Closely held Sazerac has 550 brands, including Buffalo Trace bourbon, Fireball Cinnamon Whisky and BuzzBallz ready-to-drink cocktails.
Brown-Forman and Sazerac are both headquartered in Louisville, Ky...
A decade ago, Sazerac bought the Southern Comfort and Tuaca brands from Brown-Forman.
For insight on how this might play out, I turn to one of my readers, New Zealander Eden Bradfield, who publishes on Substack. He wrote to me last week, before the recent news broke:
I picked that BF was a likely acquisition target a year or so ago. Seems like it has come to pass.
I've written a lot on BF – it's always interested me, and was trading around 13 times earnings prior to Pernod takeover speculation. I think a lot of the alcohol stocks are undervalued in general given that most analysts conflate Gen Z's declining booze spend with not wanting to drink rather than lack of income (this trend happened with millennials, too – as millennial earnings power grew, so did what they spent on alcohol).
He then gave several reasons why he likes Brown-Forman's stock here:
The Brown family has a cash cow and plenty of dividends. Sure, growth has been sluggish, but it still prints money. They retain 54% voting control, so they need a very good offer to sell.
I think the stock's worth $35 to $40, based on comparables and brand value. Japanese beverage giant Suntory recently sold Four Roses bourbon for about 6 times revenues versus BF at 3.8 times today.
More importantly, I think Pernod needs BF more than BF needs Pernod. Pernod is a faceless corporate monster that has a bit of everything, but not really the best of anything.
And Bradfield correctly anticipated another bidder (though not specifically Sazerac), writing:
There also may be a bidding war, if CEO Bernard Arnault at LVMH (MC.PA) decides to demerge its underperforming Moët Hennessy ("MH") division. Diageo's (DEO) new CEO, "Drastic" Dave Lewis, might also be interested in bidding for BF.
Today, he added:
I think Sazerac makes more sense than Pernod because of the cultural fit with the Brown family – similar ethos and values – so I think they will strongly prefer the Goldrings (Sazerac owners) to Pernod. Of course, if it becomes a bidding war, the Browns will be obligated to think about the best interests of all shareholders.
He also shared with me three of his Substack posts. In the first, on March 26, he analyzes the Brown family's interests and concludes:
... there needs to be a hefty takeover premium for the family to entertain the offer. Brown Forman has little debt. They have assets of over $8b. They have $444m cash in the bank. They need a hell of a reason to sell. Pernod, in my estimation, needs to offer a +30-60% premium to be in the ballpark. We're looking at $32.00 a share, minimum, which would still imply a very humble +$15b equity value or [an enterprise value] of ~$17b.
In his second post, on March 30, he traces the history of Pernod Ricard's original 1974 merger and concludes that the Brown family will want three things:
... 1) a guaranteed seat (or two) at board, 2) a voting bloc, like Wolf Pen Branch is now at Brown Forman, and 3) certain protections over legacy brands and property associated with them.
Still. I wonder if the Brown family are going to want to give up total control, as they have now, of their family legacy? While I think the company is an attractive purchase I am quite aware the Brown family hold all the cards. They could easily say no.
And in his latest post, on April 7, Bradfield analyzes a possible deal with LVMH:
Why not acquire Brown Forman, add serious heft to MH's proposition, and call the whole thing Moët-Hennessy-Brown or whatever...
But let's say LVMH carves out MH – well, that's not something Daddy Arnault owns entirely anyway. It takes an underperforming division from out of the LVMH umbrella. And, crucially, it would give the Brown family a seat at the table – something Arnault would be [loath] to do at LVMH itself.
As he continues, LVMH has several advantages over Pernod as an acquisition rival:
Like Pernod, LVMH is family controlled. Unlike Pernod, LVMH has plenty of headroom for debt and plenty of cash...
Look: this is all fantasy, but in some ways I think LVMH may be a serious competitor for BF; Pernod may have competition. MH increases its pro-forma revenue to just shy of 10b [euros]; Diageo gets a passive stake in the world's no.1 American Whiskey; it shifts MH's portfolio from just wine and cognac (with the odd whisky there) to a major whiskey player (don't forget about Woodford!).
Let's say this happens. Then you're looking at a bidding war, albeit a very polite, European bidding war. Obviously this would raise the bid price for BF.
Thank you for sharing your insights!
I agree with him that Brown-Forman is likely to do a deal – and, if so, at a price at least 20% to 30% higher than it's trading at today.
My Stansberry's Investment Advisory team and I are going to do a deep dive into Brown-Forman. If we decide it's time to invest, subscribers will be the first to know. (If you're not already subscribed, you can do so by clicking here.)
2) I've long thought that bitcoin and other cryptocurrencies do far more harm than good...
Unfortunately, their primary uses are to encourage reckless speculation among investors, as well as enable fraud, extortion, terrorism, drug smuggling, and other crimes.
Heck, China has even gone as far as establishing a comprehensive ban on all cryptocurrency transactions, mining, and related business activities.
I don't think that's the worst idea for the U.S. But it's not going to happen...
In our country and most of the rest of the world, the sector not only isn't going away but has grown into a major asset class. The total cryptocurrency market capitalization is approximately $2.5 trillion, with bitcoin accounting for roughly 60% of this.
For investors, the potential for gains in cryptocurrencies is huge... but so is the risk. That's why I've long said that most folks are better off just staying away. Or if they do decide to put a bit of money to work, having an expert guide who knows the space is critical.
Personally, I doubt I'll ever invest in the sector. But I still find it fascinating and follow it closely.
So I read with interest that the mystery of who created bitcoin under the pseudonym Satoshi Nakamoto may have finally been solved...
Investigative journalist John Carreyrou published an in-depth story in the New York Times, in which he makes a compelling case that bitcoin's creator is Adam Back, a 55-year-old British cryptographer.
Here are the four main takeaways:
Mr. Back came up with almost every feature of Bitcoin first...
Striking similarities link Mr. Back and Satoshi...
When Satoshi appeared, Mr. Back disappeared...
Mr. Back and Satoshi shared many of the same writing tics.
Though Back denies creating bitcoin, Carreyrou has a great track record of solving big mysteries. He's known for exposing the fraud at Theranos (I recommend his book about it, Bad Blood).
3) With more and more airlines jacking up their checked-baggage fees, it's more important than ever to pack light so you can avoid checking your bag.
I shared my minimalist packing tips in a video here and in my December 3 e-mail. And I want to share another trick I just learned earlier this year: using travel compression bags like these I bought on Amazon (for only 82 cents each!):
They're really simple to use. Just put your clothes in, seal the open end like a Ziploc, and then squeeze out all the air (the other end has a one-way valve built in). I've found that it reduces the amount of space that clothes take up in my bag by 50%.
Here's a Washington Post article with more packing hacks:
Choose the right bag and packing accessories [I recommend this bag]...
Winnow down to the essentials...
Versatility before volume...
Roll, fold or both?...
Be sparing with extras...
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.