Monday Business Briefing: After Beam, is Brown-Forman the next spirits firm to be acquired?


Brown-Forman has a 143-year history in Louisville. Will it celebrate its 150th anniversary in London, Tokyo or Paris?

Welcome to the Jan. 20 Monday Business Briefing.

This is your private business intelligence briefing with Insider Louisville staff and contributors vetting tips collected during the past few days, hours and minutes before we post at 7 a.m.

And we have to confess that as 2014 begins, Monday Business Briefing is getting so many tips and documents we can’t double-verify everything in a single week. So, we apologize if we didn’t get to your information this week. We haven’t forgotten … We’re just behind!

A reminder: Keith Starling, commercial leasing and marketing manager at America Place Business Park, is our special guest for the Insiders Meetup this afternoon at Vincenzo’s. You can register here.

Color this the “already gone?” edition of the Monday Business Briefing, with last week’s bid for Beam by Osaka, Japan-based Suntory a sobering moment, so to  speak, in regard to our relationship with our most active Louisville-based corporation.

• For a long-time, spirits industry websites have been documenting the various companies vying to acquire Beam, the Chicago-based spirits company that owns the giant Clermont distillery, as well as Maker’s Mark in Loretto, Ky.

Last week, Suntory was the tentative winner, with a $13.6 billion bid.

We’ve contended for years in the Monday Business Briefing that both Beam and Brown-Forman were too small to survive as stand-alone publicly traded corporations, too vulnerable to raiders and acquisition by larger companies. The likelihood of Brown-Forman being acquired has been a hot topic at business gatherings and in private conversations for years.

As we put it in the Aug. 13, 2012, Monday Business Briefing:

The reality is, small, profitable publicly traded corporations get punished for being successful. Sooner or later someone is bound to ask if Brown-Forman is more valuable broken up into component pieces. How much is Jack Daniel’s worth to Sazerac or to Diageo? How much would Brown-Forman be worth if combined with Beam? The fact that Louisville depends so heavily on the company for its philanthropy and its leadership doesn’t figure into the calculus.

It’s not “good” or “bad,” we wrote. It’s just capitalism.

The writing has been on the wall all that time. London-based Diageo, the largest distiller and drinks company in the world, explored a bid for Beam in 2012. Diageo executives, for whatever reason, never made their move.

Financial Times is calling the Beam acquisition an “aha moment” in terms of a consolidation of the international spirits market/distribution matrix. Brown-Forman’s shares rose 6 percent since the Beam announcement, “with investors convinced another big transaction is in the works,” FT reporter Anjli Raval noted.

Since the Great Recession, there has been massive behind-the-scenes jockeying all over the world as cash-heavy companies eyed Brown-Forman, which owns Jack Daniel’s Tennessee Whiskey, Finlandia and other stellar global brands.

For example, back in 2012, MBB reported a very, very curious incident involving Pittsburgh-based PNC Bank, an incident never reported locally. On Aug. 10, 2012, PNC Financial Services Group announced it had acquired 10 percent of all Brown-Forman shares. Which should have triggered a Schedule 13D, a Securities and Exchange Commission-required disclosure of intent.

Later, PNC executives told Reuters it was “a misfiling,” and they’re holding below the 5 percent reporting threshold. PNC refused to say what happened. We did the research, and we could never find another example of such a Schedule 13D “misfiling.” Why? Because banks and large publicly traded companies (and their legal departments) don’t make such egregious – and embarrassing – mistakes.

Now, the Just Drinks industry website is predicting Pernod Ricard is “on the cusp of entering a ‘rebalancing phase’ for both its geographical footprint and its portfolio,” with Brown-Forman being touted by one analyst as good targets for the firm.

What would this mean for Louisville? Well, if history is our guide, nothing good. In the 1980s, Louisville had large local banks such as Liberty National bank. Financial services giant Providian was still based here. Vencor was a short-lived but bright shooting star. Jewish Hospital was still healthy, and a major civic force for good. The Bingham Family owned The Courier-Journal, WHAS TV and other media.

Those enterprises, along with Humana, went out of their way to support the arts and civic organizations. It was a different dynamic, with Louisville-centric civic leaders including Owsley Brown II, Owsley Frazier, Malcolm Chancey, Mike Harreld, David Jones, Barry Bingham Jr., Wendell Cherry and Irv Bailey.

Now, we’re down to two local companies who make significant civic contributions – Humana and Brown-Forman.

Brown-Forman’s largest reported shareholders are Wayne Hancock’s Louisville-based Atlas Brown Investment and Vanguard Group, the Philadelphia-based fund. Each hold more than 5 percent of the company’s shares. At the time, we didn’t have the resources to dig into Class-A trust provisions. Now we do.

More as we have longer conversations this week with analysts and insiders.


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• An interesting development we’re thinking Jim King wishes would have happened last week.

Friday afternoon, state officials notified IL the bond trustee for the KFC Yum! Center bonds finally approved redrawing the tax increment financing district for the arena. It is now officially 2 square miles, reduced from the original 6 square miles.

From Pamela Trautner, public information officer for the Kentucky Finance & Administration Cabinet in Frankfort:

I just wanted to let you know the bond trustee approved the change in the TIF area from 6 miles to 2 miles. The papers were signed late yesterday.

An important puzzle piece in divining struggling Louisville Arena Authority finances. King, both an Arena Authority member and president of the Louisville Metro Council, started advocating the move last summer. In September, King got a motion to recommend the change through the Metro Council, which some local media mistook for actually making the change.

Unfortunately (or fortunately, depending on your point of view), the state, not the city, oversees all TIF districts. Moreover, not even Jim King has the power to unilaterally change contracts. In this case, a $340 million agreement to repay KFC Yum! Center bondholders.

TIF districts only generate revenue if economic activity in the district increases over a baseline year, in this case 2005. The theory behind shrinking the arena TIF district is that at 6 square miles, growth around KFC Yum! Center was negated by companies leaving other parts of the city.

Ms. Trautner tells MBB the aggregate 2005 property tax revenue was $2.6 million and the sales tax revenue was $32.8 million.

“Please note that these figures are based on the 6-mile district. When and if the new 2-mile district is approved, then we can provide a recalculation of 2005 revenues based on the smaller district so as to have an ‘apples to apples’ comparison,” she wrote last week.

So again, we beg your indulgence as we get the numbers on how much the smaller TIF district produced, whether those changes are retroactive and whether there is any actual data as to whether TIF district can service the debt.

Only the best at GLI.

Only the best at GLI. (Click to see these Sayle chairs in their full glory.)

• This would be funny if it weren’t the economic future of Louisville at stake.

Business First had a scoop last week, reporting Greater Louisville Inc. officials have called off a “victory celebration” scheduled for Jan. 28 after the GLI fundraising campaign came up far short of its $2 million goal.

You’ll recall that 2013 was (so far) the low-water mark for what used to be a vital economic-development/chamber of commerce organization.

In October, GLI cut or lost 10 of 46 employees, or 20 percent of staff. The organization also released its 2012 Form 990, which stated GLI lost about $1 million that year, with $7.6 million in membership dues and other revenue, but $8.5 in expenses.

Here’s the cosmic irony section of today’s post: GLI staffers just moved into their renovated digs on Main Street. Renovated to the tune of $600,000.

When you get a chance to drop in for their housewarming, please compliment them on all the Herman Miller Sayle and Aeron chairs. The Sayle chairs are especially cutting edge, and we think a bargain at $449 per chair. Let’s just say it out loud … “GLI leadership, you’ve earned the best!”

Last month, WDRB’s Chris Otts reported about GLI issuing a December report criticizing Humana, one of its largest “investors,” for not supporting the entrepreneurial community. This is after a third of GLI’s membership bolted.

We actually have some news in all this … look for the economic-development landscape to change quickly, starting with a new branding campaign. We’re getting heavy hints from an unsubtle source that Louisville is about to get another branding campaign to replace “Possibility City” and the “Idea Capital of the World” campaigns.

The helpful hint came with a blurb from a recent Forbes post titled “How cities can reshape their brand narratives”:

Others are getting their acts together. Louisville’s had a sustained commitment to startups, its mayor has a background in business and entrepreneurship, and the city has seen growth in coworking spaces like iHub and The Ville, as well as accelerators like Velocity, XLerate Health and Village Capital Venturewell. Nashville, with growth in healthcare and music platform startups, recently opened a $10 million entrepreneur center and is proving to be far more than Opryland, a collection of aspiring country musicians, and a mediocre NHL hockey team.

Again, who can forget that magical evening in March 2010 when departed GLI CEO Joe Reagan and now retired Humana CEO Michael McCallister introduced the “Idea Capital of the World: Where Imaginations and Individuals Thrive” campaign at GLI’s hallucinogenic annual meeting, complete with black-clad swami/inspirational consultant Lance Secretan?

Or, as Secretan bills himself, “One of the World’s Great Thinkers.”

Funny? Not really. Louisville’s business community aided and abetted GLI’s downfall. We had a tense conversation with an executive at a top GLI donor about whether his company would continue to support. “There’s no decision at this point,” is all he would say.

• This is puzzling. Last week we told you about Humana having a bad week. The health insurer/health care provider filed a Form 8k with the Securities and Exchange Commission stating it believes the federal government will cut more dramatically than projected contributions to private Medicaid plans in which the government covers some of the extras such as dental and vision.

It gets more curious: Sources told us there was a high-priority emergency meeting called Friday. At the end of that meeting, the top two executives in Humana’s internal audit department were gone and just-retired CFO Jim Bloem was the new department head.

We’ve never heard of a retired CFO at a Fortune 100 corporation returning to head up a single department. But it’s true.

Kate Marx, regional communications consultant to Humana, sent us this:

We announced several months ago that Jim Bloem remains a Humana employee during a transition period following his retirement as CFO on Dec. 31. He is helping us in a number of financial areas, including internal audit as we seek a permanent department head.

• Also last week, we told you Tavern on Fourth wasn’t going to happen. That’s one of the few times our sources were off. We got to talking at length with a bona fide insider who assures us Fourth Street Live owner The Cordish Cos. will build the big bar that’s been long planned at Fourth Street Live. That’s the good news. That source also tells us negotiations between the Fischer Administration and Baltimore-based Cordish to put an Omni Hotel on Third Street are on hold.

Picture 1• Sources are warning us to monitor pending problems at yet another downtown office tower. This time, it’s Citizens Plaza at 500 W. Jefferson St. Our source tells us he is “mystified by its ownership and frankly, (I) smell a major meltdown in the (central business district) office market.”

Major issues?

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The owner is Optima 500, whose only asset appears to be PNC Plaza. The Kentucky Secretary of State just revoked Optima 500’s charter for failing to file an annual report.

Parent Optima Ventures/Optima International is owned by Miami real estate mogul Mordechai Korf.

Now Optima, well that’s an interesting company. Our research shows Korf and Optima have investors in Eastern Europe, and own buildings in Miami, Cleveland and elsewhere. The question is, do they remember they own the PNC Tower?

Because there’s a problem on the horizon. Back in 2008, PNC bought Cleveland-based National City Bancorp. In Louisville, as in many cities, PNC ended up with redundant offices, in this case the National City Tower at Fifth and Main streets and PNC Plaza.

At PNC Plaza, the main tenants are PNC Bank, Hilliard Lyons, Wyatt, Tarrant & Combs and Stoll Keenon Ogden. Our source says PNC’s lease at PNC Plaza ends in 2017 at the same time Optima 500 will have to pay lenders for the building, which they bought in 2011.

Our sources believe there is a high probability PNC will consolidate operations to the NatCity Tower. If they do, it could create a vacancy equaling two years of absorption of CBD office space at current absorption rates. We’re on top of this, consulting the usual suspects.

• Eighteen months ago, we told you U of L was buying the Cardinal Club in Simpsonville. At the time, U of L officials denied it. When we went with what trusted sources were telling us anyway, we got huffy calls and emails from U of L, telling us we were wrong.

We were sooo far off the mark that Business First reported Friday U of L not only bought the course, they’ve already rebranded it as University of Louisville Golf Course. How much did they pay? No idea. When did the deal close? BizFirst’s reporter apparently thought it was bad form to ask.

UPS executives said Friday fourth-quarter earnings will fall well short of market estimates due to a surge in volume from online retailers that caught the shipper off guard, resulting in missed Christmas deliveries … and higher costs.

Our sources tell us the complicator was Amazon, which either miscommunicated its demand, or gave UPS faulty projections. Media reports state shoppers got direct mail from Amazon guaranteeing Christmas Day delivery on orders placed as late as Dec. 22!

UPS officials said it delivered more than 31 million packages on Dec. 23, the most in its history. Of course, it was all those packages they delivered on Dec. 26 that earned the public ire.

• As we told you last week, look for Louisville businesses to get nice payoffs from the giant outlet malls either planned or under construction in Simpsonville. The first to score is advertising firm Vimarc, which we’re being told will be the agency of record for The Outlet Shoppes of Louisville.

• Yet another national retailer might be making its Louisville debut. A tip from a loyal insider: San Antonio-based Academy Sports + Outdoors might be opening a store at the Middletown Commons Shopping Center. Nashville-based GBT Realty Co. is building the Middletown Commons festival-style mall on Shelbyville Road just east of Middletown.

If you look at the other centers GBT has developed, the formats with 71,000-square-foot spaces have Academy Sports + Outdoors, says our source. “Middletown Commons has a space that is exactly 71,000 square feet in size, and it was released that a sporting goods retailer new to the Louisville area was opening in the center.”

A coincidence? We think not! Very cool ….

Academy Sports + Outdoors has everything from sporting goods equipment to outdoor gear to apparel.

Here’s a list of current GBT projects courtesy of our source.

 Actual MBB briefs:

Louisville Antique Market is now open at 845 East Jefferson St. in NuLu, just across from Bargain Supply. The grand opening Feb. 7 will coincide with the Friday Trolley hop, according to co-owner Daniel Chamberlain. “Several dealers from Goss Avenue Antiques and others already signed up and moving in.”

• Sources tell us Baptist Health’s new CEO Steve Hanson is making good on his vow to organize the collection of hospitals into a cohesive system. Baptist executives are recruiting department heads and have hired Chicago-based search firm Quick Leonard Kiefer.

• For the first time since the 1980s, Health and Human Services may start revealing to the public exactly how much money individual doctors earn treating Medicare patients. Last year, a federal judge in Florida ruled the public interest in reporting fraud outweighs doctors’ privacy.

• Insiders tell us the Whitestone Building at 607 W. Main St. just west of the new Evan Williams Experience urban bourbon distillery is getting a renovation, with an advertising firm as the main new tenant.

Stoll Keenon Ogden is adding a new Privacy and Information Security practice group. More as we know more. We can’t think of any legal category more relevant in 2014.