Fortune Brands shares jumped 7 percent Monday after the U.S. spirits company lost an auction for Absolut vodka maker Vin & Sprit and said it would begin buying back its own shares.
Fortune Brands , which was outbid by French rival Pernod Ricard, said it authorized the repurchase of up to 15 million shares of its stock -- which has dropped 26
percent since August due, in part, to uncertainty about how buying Vin & Sprit would hurt earnings.
Barrington Asset Management analyst Alex Paris said Fortune "removed one uncertainty" -- about the possible acquisition-related earnings hit -- and "added a positive certainty" in buying back shares at an attractive price.
Paris said share buybacks are part of Fortune's regular strategy, though the maker of Jim Beam Bourbon and Sauza Tequila had recently slowed the pace in order to prepare its balance sheet to buy the Swedish state-owned spirits company, which analysts had estimated would cost $6 billion to $7 billion.
Pernod won the auction with a bid of 5.63 billion euros ($8.9 billion).
Fortune said it had not seen "appropriate return" for its shareholders at that price.
"While we had hoped to purchase Absolut at the right price, we didn't hesitate to put our shareholders' interests first," Fortune Chief Executive Bruce Carbonari said in a statement.
By the Numbers
Carbonari said Fortune made a careful evaluation of factors such as the Swedish vodka maker's growth and returns prospects, current currency exchange rates and capital markets, and alternative uses of its financial resources.
Fortune also said it would start the buyback of a 10 percent stake in its Beam Global spirits business, currently held by Vin & Sprit.
Fortune's Beam subsidiary is party to an agreement to distribute Absolut in the United States into 2012 through a majority-owned joint venture with Vin & Sprit.
Absolut is also part of the Maxxium international distribution venture in which Fortune is a partner.
Fortune said it plans to continue distributing Absolut in the U.S. through 2012.
"The operational consequences of the privatization of V&S are very manageable, starting with significant protections in our spirits distribution joint ventures," Carbonari said.
The purchase of Vin & Sprit by its French competitor was not expected to dent Fortune's earnings, he added.
"Due to these protections, we expect no adverse EPS impact to Fortune Brands in the near term.
These protections give our spirits business plenty of time to manage any future changes to its distribution alliances," Carbonari added.
Fortune shares were up $4.28, or 6.7 percent, at $68.14 in late morning trading on the New York Stock Exchange.
The shares have traded in a 52-week range of $62.50 to $90.80.