Fortune Brands shares leap following new stock buyback program

Shares in Fortune Brands Inc. surged today after the spirits and wine maker launched a large share buyback program in the wake of a failed bid to acquire the maker of Absolut vodka.

The move came after the Deerfield-based firm was beaten out by French rival Pernod Ricard SA in its effort to buy Vin & Spirit Group, the Swedish distiller that was auctioned as part of a sell-off of state-owned companies.

Fortune Brands Chief Executive Bruce Carbonari said he had hoped the company could buy Absolut "at the right price," but not at $8.3 billion, and that shareholder interests came first.

"We didn't see the appropriate return for our shareholders at the announced price, so we preserved our financial flexibility to create significant value in other ways," he said in a statement.

Fortune Brands said that instead of buying V&S, it authorized the repurchase of up to 15 million shares of stock. It also said it will begin buying back the 10 percent equity stake in its Beam Global sprits business currently held by V&S.

Fortune Brands also said its Beam Global business will continue to distribute Absolut vodka in the U.S. under its joint venture with V&S. The partnership will end in 2012.

The company said the sale of V&S to Pernod Ricard should not affect its earnings in the near term.

Shares rose $5.07, or 7.9 percent, to $68.93 in midday trading Monday -- still down 6 percent in 2008 and 25 percent off last August's three-year high.

Banc of America Securities analyst Bryan Spillane said the shares surged because Fortune Brands did not overpay in its failed bid for V&S.

He said in a note to investors that the company "loses scale and there will ultimately be some earnings hit, however this is moderated by the likely staggered timing of the events over what could be a couple of years, as well as the share repurchase authorization."

Analyst Peter Lisnic of Robert W. Baird & Co. said the completion of the V&S auction removes uncertainty that had hung over Fortune Brands.

"While the V&S assets are attractive, the high purchase price would have made a winning bid substantially dilutive and unattractive for shareholders," he said.

Besides wine and spirits, Fortune Brands manufactures and sells home and hardware products and golf equipment.