LIQUOR: Up American

A lone investor paid $2,550 for 100 shares of American Distilling Co. stock on Thursday, Sept. 30. If he had happened to sell out at 11:45 a.m. on Wednesday, Oct. 27, he would have made a gross profit of $4,150. Even if he held on—which is much more likely—he would have ended the week with a paper profit of $3,725, almost half of it chalked up during last week’s five and a half days of trading. Despite this dizzy boom, he might well think his shares were not overvalued.

Shades of Repeal. Last week’s rise in American Distilling was so sharp that SEC began looking under desks for manipulators. Not since the wild Repeal days of 1933 had distilling shares been so popular; in fact, they were selling like bottles of whiskey. But probably SEC would find only that the market had belatedly recognized the wartime facts of distilling. All the whiskey shares were strong last week because—for the long term—whiskey stocks are scarce and the industry has finally given up hope that the Government will give it a “holiday” from producing industrial alcohol. Result: the value of remaining whiskey inventories has climbed like a P-47.

Within the past month one big liquor deal has gone through: Seagram’s $43,000,000 purchase of a 95% interest in Frankfort Distilleries. Two other big deals are bruited: Allied Mills may sell its whiskey subsidiary, Century Distilling Co., for around $28,000,000; Park & Tilford is dickering for Brown Forman. In all these deals the buying price is more than $100 per barrel of whiskey stocks—a good deal more than their value on the books of the small fry selling out.

Cash for the Little Man. For the small fry, that kind of cash on the barrelhead is a huge inducement: if they hang on and sell their liquor themselves, they are liable to excess-profits taxes running up to 90%. But if they sell out, they will merely pay the 25% tax on long-term capital gains. But for the big companies with low inventories, who must maintain their competitive positions, the reverse is true: almost any way of acquiring more well-aged whiskey stocks makes sense. Example: Seagram is the No. 1 North American liquor company in sales. But even after buying up Frankfort’s 400,000 bbl. of whiskey its total inventories of around 1,300,000 bbl. leaves it well behind Schenley, with 2,000,000 bbl., and barely ahead of National’s 1,250,000 bbl. (Hiram Walker, fourth in the Big Four, trails with some 900,000 bbl.)

These facts touched off the American Distilling surge. For if & when all the other deals go through, American will be about the biggest independent left. Wall Street is already awash with rumors that American, too, is not long for this world. In any case, at $100 each, its 200,000 bbl. of liquor translate into $80 for every one of its 250,000 shares of stock—v. a top price last week of 67.