Beam Brands Under Fire for Exaggerating Sales

CHICAGO (CN) - Jim Beam may have given Luxco, maker of Everclear, misleading sales numbers in a $65 million acquisition deal for some of Beam's lesser known brands, a federal judge ruled.

Early this year, alcohol maker Luxco purchased several liquor brands from Jim Beam Brands Co., including Wolfschmidt vodka, Lord Calvert Canadian whiskey, Calvert Extra whiskey, Calvert gin, the Bellows line of whiskey, gin, rum and vodka, Canada House Canadian whiskey, and Tempo Triple Sec.

Beam represented that these brands sold about 1.8 million cases last year, approximately $30 million worth of liquor, the St. Louis Post-Dispatch reported.

Just days before the deal was scheduled to close, Luxco queried Beam about whether it had provided accurate information regarding sales of these brands. Beam affirmed that it had.

Shortly thereafter, Luxco sued Beam for breach of contract, alleging that many of the acquired brand cases sold were tied to sales of other Jim Beam flagship products, such as Jim Beam and Makers Mark bourbons.

"Specifically, Jim Beam designed its incentive programs to generate increased sales of its premium brands, which the APA [asset purchase agreement] did not include, through giveaway and discount programs involving the Acquired Brands. Jim Beam gave away a substantial portion of the Acquired Brands to enhance its sales of its premium brands. But for these marketing programs, the true sales numbers of the Acquired Brands would have been significantly lower, resulting in a lower purchase price," the judgment said, summarizing Luxco's complaint.

In addition, Beam allegedly reformulated some of the vodka brands it sold to Luxco into vodka liqueur, without telling Luxco that a number of key retail accounts advised Beam they would not buy vodka liqueur.

U.S. District Judge Amy St. Eve denied Beam's motion to dismiss last week.

"Jim Beam argues that Luxco attempts to transform Jim Beam's representation and warranty from one addressing historical sales data into one concerning future sales and profitability. Jim Beam asserts that such a claim would be barred by the APA, which provided that Jim Beam 'does not make any representation or warranty as to the future sales or profitability of the products,'" St. Eve said. "Both contentions are baseless and mischaracterize Luxco's First Amended Complaint. Nowhere in Count One does Luxco make any allegations regarding future sales. Rather, Luxco's claim alleges that Jim Beam provided incomplete data regarding the sales and volume history of the Acquired Brands."

The judge said she cannot rule at this stage on whether the alleged loss of key national retailers threatened the overall earnings potential of the brands in a significant way, or whether the loss was just a "short term hiccup" that does not qualify as a material adverse effect.

"Luxco's First Amended Complaint alleges two counts of breach of contract. Luxco's allegations identify the specific representations and warranties that it asserts Jim Beam has breached, and they identify Jim Beam's actions that allegedly constitute the breach. The Amended Complaint gives Jim Beam fair notice of Luxco's claims and presents a story that holds together and could have happened," St. Eve concluded.

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