This week, consumer products giant Fortune Brands (NYSE:FO) announced that it was breaking itself up into three separate businesses. This news comes after activist investor Bill Ackman of Pershing Square disclosed his stake in the iconic company just a few months ago.

IN PICTURES: What Is Your Risk Tolerance?

A Better Fit
Thanks to Ackman, the notion that Fortune's three separate business division did not make strategic sense became crystal clear. In announcing its intent to split up, Fortune's management revealed that the company's board had voted unanimously for separation. Fortune Brands' three division - spirits, home and security, and golf - will either be sold off or spun out into individual businesses within the next several months.

Investors immediately agreed that in Fortune's case, three separate parts would be greater than the whole. After Ackman revealed his stake back in October, shares in Fortune Brands are up by nearly 20%. According to filings, Ackman's average cost was around $46 a share. Today, shares are trading for around $62. How much additional upside remains will be determined by how the breakup process ultimately unwinds.

Valuable Assets
Fortune's assets are very valuable and will likely attract plenty of attention from suitors. There is strong consensus already that Diageo (NYSE:DEO) of the U.K., the world's largest spirits company, is very interested in some of Fortune's spirits brands. The golf unit, home of strong golf brands Titleist and Foot Joy, could be of great interest to a wide host of buyers, from private equity shops to competitors like Nike (NYSE:NKE) or Germany's Adidas. It's doubtful that Callaway Golf (NYSE:ELY), with it market cap of just $530 million, could participate, as Fortune's golf division generates more than $1.2 billion in annual revenues.

Fortune's other division, home and security, includes Moen, the No.1 faucet brand in North America. In addition, the division also holds the leading brand positions in cabinets, doors, and padlocks, and generates more than $3 billion in annual revenues. Fortune plans to spin out this division into a separately traded public company.

Value in Many Forms
While Fortune's management claims to have spent the past "four years" contemplating the break of its divisions, it was Ackman who ultimately proved to be the catalyst. It just goes to show that value can be found in various ways and forms. (For related reading, take a look at Could Your Company Be A Target For Activist Investors?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  2. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  3. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  4. Entrepreneurship

    Top 5 Most Successful Swedish Entrepreneurs

    Understand what makes Sweden a great place for entrepreneurship. Learn about five successful Swedish entrepreneurs who are making big impacts.
  5. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  6. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  7. Entrepreneurship

    Top 5 Most Successful Mexican Entrepreneurs

    Understand why so many socially conscious entrepreneurs have come out of Mexico. Learn about the top most successful Mexican entrepreneurs.
  8. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  9. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  10. Investing

    A Look at 6 Leading Female Value Investors

    In an industry still largely predominated by men, we look at 6 leading female value investors working today.
  1. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  2. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!