) - one of the leading producers and distributors of premium
alcoholic beverages in the world - has completed the offering of
$750 million senior unsecured notes. The debt offering has been
completed on the scheduled date i.e. Dec 12, 2012.
According to the company, the notes have been offered in three
different tranches having distinct maturity dates. The first $250
million notes, carrying an annual interest rate of 1.00%, will
mature on January 15, 2018. Another $250 million worth of senior
notes, which is issued at an annualized interest rate of 2.25%,
is due on January 15, 2023. The last $250 million of notes carry
an annual interest rate of 3.75% and maturity date of January 15,
A consortium of Barclays Capital Inc., Citigroup Global
Markets Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, U.S. Bancorp Investments, Inc., Deutsche Bank
Securities, Inc. and Wells Fargo Securities, LLC were the
Underwriters of this issuance.
Management at Brown-Forman stated that the proceeds from the
offering along with $100 million of cash on hand will be utilized
to pay the special cash dividend of $4.00 per share, which brings
the total dividend amount to approximately $850 million. The
special cash dividend is separate from the company's regular
quarterly dividend. Earlier on Nov 15, 2012, Brown-Forman
announced an increase of 9.3% in its regular quarterly cash
dividend to 25.5 cents per share, payable on Dec 16, 2012.
The company has a consistent track-record of returning cash to
its shareholders in the form of share repurchase and dividend
payment. Brown-Forman has paid quarterly cash dividends
consecutively for the past 65 years and has been increasing it
for the last 29 years. The company's recent dividend increase and
special cash dividend reflects its commitment to enhance
long-term value for shareholders. Through this, Brown-Forman also
represents its ability to boost the long-term prospects for
earnings as well as cash flows.
As of Oct 31, 2012, the company has a cash and cash
equivalents of $368.5 million, long-term debt of $501.4 million
and shareholders' equity of $2.305 billion. The current
debt-to-capitalization ratio comes to 17.9%. However, after the
completion of the debt offering, it will double to 35.2%. We
believe that the debt-to-capitalization ratio, following the debt
offering, will gradually decline in the long run owing to the
company's consistent track-record of generating cash flows, which
may be utilized to bring down debt.
We believe that Brown-Forman's strategy of expanding Jack
Daniel's market share in developed markets, such as France and
the U.S., and emerging markets including Russia, Poland and
Mexico, where the whiskey category is in the early stages of
development, will enhance its top line.
However, apart from macroeconomic headwinds, distilled spirits
are subject to excise tax in various countries. Rising fiscal
pressure in the U.S., European and many emerging markets may lead
to increasing risk of a potential excise tax on spirits by the
governments of respective countries. The effect of hike in excise
tax in the future may have an adverse effect on Brown-Forman's
Above all, the company faces intense competition from other
well-established players in the industry, such as
Constellation Brands Inc.
). Moreover, Brown-Forman encounters competition from local and
regional players in the respective countries. Consequently, this
may dent the company's future operating performance.
Currently, Brown-Forman has a Zacks #3 Rank, which implies a
short-term Hold rating. Moreover, we maintain a long-term
'Neutral' recommendation on the stock.
Brown-Forman is one of the leading producers and distributors
of premium alcoholic beverages in the world. The company has a
strong portfolio of more than 25 premium brands, including Jack
Daniel's - the flagship spirits brand - followed by Southern
Comfort liqueur, Canadian Mist whiskey, Finlandia vodka as well
as Fetzer and Korbel wine brands. Brown-Forman markets its
products in more than 135 countries including, the U.S., UK,
Australia, Mexico, Poland, Germany, France, Spain, Italy, South
Africa, China, Japan, Canada, and the Russian Federation. The
Louisville, Kentucky-based company also has 16 production and
warehousing facilities spread across the U.S., Europe and
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