Cott Corp. plans to acquire Primo Water Corp. for US$775-million, including debt, and adopt its former rival’s name as the 90-year-old company leaves behind soft drinks and coffee to focus on bottled water.
Toronto-based Cott announced a cash-and-shares offer for North Carolina-based Primo on Monday, the latest in a string of eight acquisitions of water-focused companies acquired for more than US$2.7-billion over the past five years.
Primo sold US$302-million of water dispensers and refill bottles last year, and major customers include Walmart Stores Inc. and Costco Wholesale Corp. The US$14-a-share offer represented a 26-per-cent premium to Friday’s closing price of Primo shares on the Nasdaq exchange.
Cott plans to pay up to US$216-million in cash for Primo and finance the remainder of the takeover by issuing up to 26.8 million new shares. If Primo shareholders approve the offer, the transaction is expected to close in March. The combined companies would have operations in 21 countries, including recently acquired divisions in Hungary and the Netherlands.
Earlier this month, Cott put its S&D Coffee and Tea subsidiary up for sale, and the unit is expected to fetch up to US$430-million. Cott also sold its soft drink and juice businesses to a Dutch beverage company for US$1.3-billion in two transactions over the past two years.
“The acquisition of Primo and planned sale of S&D will result in a pure-play water company that increases top-line growth and margins,” said Tom Harrington, Cott’s chief executive officer. He said Cott, which was founded in the 1920s, will rebrand as Primo Water to “reflect the leading position we have in the growing and attractive water market.”
Looking ahead, Cott expects 6-per-cent annual growth in sales of water products, and said the business can earn an 18-per-cent margin on earnings before interest, taxes, depreciation and amortization (EBITDA). Cott expects to save up to US$35-million annually from synergies in the Primo takeover. In contrast, Cott said sales from its coffee business are expected to be flat, year over year, because of increasing competition, and its EBITDA margin in the sector is just 7 per cent.
Cott is buying a rival that recently cut ties with its CEO and was searching for new leadership. In November, Primo terminated Matt Sheehan after reporting financial results that were below the company’s forecast.
Founder and executive chairman Bill Prim, 63, was appointed interim CEO. Mr. Prim and other directors, who collectively own 10.4 per cent of Primo, agreed to support the takeover and exchange their shares for Cott stock.
The bulk of Primo’s sales come from selling large bottles of water that supply office coolers and grocery store refill stations. In a presentation on Monday, Cott said acquiring its U.S. rival is part of a strategy to reduce the company’s environmental impact by reusing and recycling bottles, and streamlining delivery.
Cott’s advisers were Deutsche Bank Securities Inc. and law firms Goodmans LLP and Drinker Biddle & Reath LLP. Primo worked with Goldman Sachs and law firm K&L Gates LLP.
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