Everything they say is for sale for the right price. On that theory, reports suggest, Constellation Brands offered to buy Brown-Forman.
Maybe, CBrands figured, the Brown family is riven by the same internal dynamics that enabled the New York wine and spirits producer to acquire Robert Mondavi. Maybe they figured that when Brown-Forman cut is earnings outlook back in March it was signaling trouble. Maybe CBrands thought that if InBev could snag Anheuser-Busch, CBrands could get a really good product (like Jack Daniel’s) to lead its spirits portfolio.
Don’t get us wrong. Anything can happen. But we don’t think Brown-Forman is going to sell out to CBrands, or anyone else. Here’s why:
The Brown family is united. The Brown family is in absolute control of the company. Unlike Anheuser-Busch, voting control is not in the hands of the public, but in the hands of the Brown Family. Two of every three shares are owned by the Browns or other insiders. A bunch of Browns work there. And the family members have a buy-sell agreement: If one family member wants out, he must first offer to sell his stock to other family members.
Not only that, but it’s been a good investment for the family. Earnings go up year after year, as do dividends. And the stock price. Warren Buffett says the ideal holding period for a stock is forever, and with increasing earnings and dividends, why would the controlling family want to sell?
Nor, for those of us old enough to remember the sad collapse of Seagram Co., is there a parallel. In the Seagram saga – as in the Mondavi and A-B scenarios – there were questions about the family member who was running the company.
Remember Edgar Bronfman Jr.? He wasn’t interested in producing spirits and owning 25% of DuPont Co. He was interested in Hollywood, and took his eye off the ball, ultimately selling the world’s No. 1 distiller to a French water company.
Remember Michael Mondavi? He led the company into lower-priced wines, and was publicly criticized by his father before the sale to CBrands.
Remember August A. Busch IV? He became CEO of Anheuser-Busch because he was the oldest son of August A. Busch III, the chairman. But there were serious questions about his fitness for the job.
None of this is true at Brown-Forman. Being the oldest son doesn’t guarantee a job. The company’s top exec right now isn’t a family member. But it has been in the past, and may be again in the future, if the family member is best suited to run the company. And no scandal has attached to either the top executives nor to the family.
There’s no comparison, either, to the situation at Dow Jones & Co., publishers of The Wall Street Journal before the Bancroft family sold to Rupert Murdoch. The Bancrofts didn’t exercise the responsibilities of ownership. They had retainers – not major family owners – on the board. The Browns don’t have family retainers on the board. And, unlike A-B and Dow Jones, all family members receive comprehensive briefings twice a year on what’s happening with their company. Brown-Forman is so committed to insuring its majority shareholders are informed that it has two investor relations officers, one for the public, one for the family.
Both companies’ stocks have done better than the overall market this year. The S&P 500 is up 7.2%, But Brown-Forman has left Constellation in the dust, surging 28% compared to CBrands’ 19% advance.
Brown-Forman isn’t for sale unless the Brown Family wants to sell. And we don’t think there’s a reason in the world for them to want to sell. Maybe CBrands was hoping the Browns would make a counterproposal and offer to buy them. But we don’t think that’s likely, either.
And around 6 p.m. this evening, Brown-Forman drove a spike in the speculation, with Geo. Garvin Brown IV, Chairman of the Board of Directors, and Paul C. Varga, Chief Executive Officer: issuing a statement that said:
“As a matter of corporate policy, Brown-Forman does not comment on market rumors or speculation.
“However, it is important to reiterate that Brown-Forman is not for sale. For nearly 150 years, the Company and the Brown family have been committed to preserving Brown-Forman as a thriving, family controlled, independent company. That commitment is unchanged, and our goal is to continue creating value for all shareholders for generations to come.”
Unless the Browns want to sell, Brown-Forman isn’t for sale.