BF.B Stock Surges On Analyst's Optimistic Takeout Valuation Amid Sazerac Acquisition Buzz

• Wall Street Journal reported on the talks, citing people familiar with the matter.
• Last month, the paper also reported that the Jack Daniel’s maker is discussing a mostly-stock deal with French spirits-maker Pernod Ricard.
• JP Morgan noted last month that Brown-Forman has historically not been receptive to takeover offers.

B-class shares of Brown-Forman (BF.B) jumped 16% on Thursday following a report that Sazerac recently approached the company for a potential deal.

Class A shares of the company (BF.A), meanwhile, rallied 14% at the time of writing.

Wall Street Journal reported on the talks, citing people familiar with the matter. Last month, the paper also reported that the Jack Daniel’s maker is discussing a mostly-stock deal with French spirits-maker Pernod Ricard. Brown-Forman confirmed the talks and said that the deal would be akin to a “merger of equals,” while also adding that the parties have not yet agreed on the terms.  

Sazerac is a family-owned American distiller known for producing a wide range of spirits. Its brands include Buffalo Trace bourbon, and Fireball Cinnamon Whisky. Like Brown-Forman, it is also headquartered in Louisville.

Analyst Optimism

According to TD Cowen, who expects Brown-Forman to garner interest from other distilled spirits companies as well,  a buyer would have to pay an equity premium of 30%-35% to close the deal with complete change of control, according to TheFly.

This would imply a stock price of $33-$34 per share.

The firm has a ‘Hold’ rating on the stock and a price target of $30 on Brown-Forman. 

Skepticism For Deals

JP Morgan noted last month following reports of the discussions with Pernod that Brown-Forman has historically not been receptive to takeover offers and its fundamentals remain challenged, but the prospect for potential mergers and acquisitions should support shares for now.

TD Cowen then reiterated the sentiment and said the firm views Brown-Forman as "an unlikely seller," given the controlling family’s 67% voting control. However, the firm also said that it believes the board and family "may be more receptive than they have been in the past," given persistent declines in the spirits industry and the industrial logic of consolidation amid slowing growth.

Earlier in February, President and CEO Lawson Whiting said that Brown-Forman was navigating a “challenging operating environment” and expects low visibility for the year amid macroeconomic and geopolitical volatility, headwinds from consumer uncertainty, and lower non-branded sales of used barrels.

Brown-Forman also said it expects full-year organic sales and operating income to decline in the low single digits, maintaining prior guidance.

How Did Retail Traders React?

On Stocktwits, retail sentiment around BF.B stock jumped from ‘bearish’ to ‘neutral’ territory over the past 24 hours, while message volume increased from ‘normal’ to ‘high’ levels.

BF.B stock has fallen 9% over the past 12 months. 

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