Fortune shares jump after Pernod bags V&S

NEW YORK (Reuters) - Fortune Brands Inc (FO.N: Quote, Profile, Research) shares jumped more than 8 percent on Monday after the U.S. spirits company lost an auction for Absolut vodka maker Vin & Sprit VSG.UL and said it would begin buying back its own shares.

Fortune, which was outbid by French rival Pernod Ricard (PERP.PA: Quote, Profile, Research), said it authorized the repurchase of up to 15 million shares of its stock -- which had dropped 26 percent through Friday's close 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 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 fetch $6 billion to $7 billion.

Pernod won the auction with a bid of 5.63 billion euros ($8.9 billion).

Absolut, which sold 10.7 million 12-bottle cases last year, is the jewel in the V&S crown, which also includes smaller brands like Cruzan rum and Plymouth gin.

But with a recession looming over the economy of the United States, where Absolut sells nearly half its volume, sales could slow.

"People can easily shift from Absolut to something else. I don't think there's a huge difference, in my opinion, between vodkas," said Paris. "And to have to pay that much for essentially one brand was a little disturbing to me."

At $8.9 billion, which values V&S at 20.8 times 2007 gross operating profit, Fortune said it had not seen "appropriate return" for its shareholders.