Breakup talks drive Fortune Brands swaps
Traders buying protection on Fortune Brands Inc. pushed the swaps to the highest level since April 2009 on concern William Ackman's Pershing Square Capital Management LP may break up the maker of Jim Beam bourbon.
The contracts jumped 5.7 basis points today to 218.3 at 9:00 a.m., according to data provider CMA, on speculation that Ackman will work on a breakup plan. The swaps are up from 127.4 on Oct. 7, the day before Ackman disclosed an 11 percent stake in the company, making the New York-based hedge-fund its largest investor.
“Part of the process is either pushing for a shake-up in management, a sale of the company or a breakup,” Adrian Miller, fixed-income strategist at Miller Tabak Roberts Securities LLC in New York, wrote in an e-mail. “The stock runs in anticipation of a takeover, but the debt comes under pressure as the risk of excess leverage troubles corporate investors.”
Shares in Deerfield-based Fortune Brands have climbed $5.33, or 10 percent, in New York Stock Exchange composite trading since Oct. 7.
Investors on the company's credit-default swaps are buying protection in part against uncertainty about how much debt will be added through any transition, according to Andrew Kuan, senior trader at Primus Asset Management in New York.
Ackman has bought stakes in companies including Target Corp. and restaurant chain Wendy's International Inc. and urges changes he says will boost shareholder returns.
The Wall Street Journal reported Nov. 12 that Fortune Brands may work with Pershing Square on a breakup plan, citing people familiar with the matter.
Fortune's businesses include a home and security division, which makes Moen faucets and windows; a golf division, whose brands include Titleist and Footjoy; and the spirits and wine group.
Alcohol sales in the U.S. are expected to rise, Fitch Ratings said today in a report reaffirming its stable outlook for the industry.
“Credit protection measures are expected to improve as cash and free cash flow are prioritized for debt reduction and operating income is anticipated to grow,” Fitch said.
The company rates Fortune Brands ‘BBB-.'