DE4CC0DE-5FC3-4494-BCBF-4D50B00366B5
Private Label

Cott Shares Rise After $1.25 Billion Deal To Buy DSS Group

By square1
Share this article
Cott Shares Rise After $1.25 Billion Deal To Buy DSS Group

Cott Corp. rose the most in five years after the Canadian producer of private-label soft drinks agreed to buy DSS Group Inc. for about $1.25 billion to expand into water and coffee home delivery and services.

The acquisition will enable Mississauga, Ontario-based Cott to branch out beyond carbonated beverages and juices and open new distribution channels outside of large retail and supermarket stores, Chief Executive Officer Jerry Fowden said.

“We have structured a transformative deal that strengthens Cott and meaningfully diversifies our business,” he said on a conference call today.

Cott also will be able to reduce its reliance on Wal-Mart Stores Inc., which accounted for more than 26 per cent of Cott’s sales so far this year, said Perry Caicco, an analyst at the Canadian Imperial Bank of Commerce. The acquisition also enables Cott to fold in a higher-margin and stable business, he said.

“The announcement is somewhat stunning given its size,” Caicco said in a note to clients today.

ADVERTISEMENT

Cott climbed 3 per cent to close at $6.24 in New York. The shares have declined 23 per cent this year.

Deal’s Details

The agreement includes the assumption of debt and the issuance of preferred shares to Crestview Partners LP and other selling shareholders, Cott said in a statement today. The purchase price is about 7.1 times DSS’s estimated 2014 adjusted earnings before interest, taxes, depreciation and amortisation, the companies said. Cott said the transaction is expected to close by January.

The deal is Cott’s biggest since at least 1996, according to data compiled by Bloomberg. In 2010, Cott had paid $500 million for Cliffstar to expand into private-label juices.

ADVERTISEMENT

Cott, which traces its roots back to the 1950s when Harry Pencer’s children were given Cott Black Cherry soda at summer camp in New Hampshire, is now one of the world’s largest producer of beverages on behalf of retailers and other companies.

DSS is the parent of DS Services of America Inc. with about 2,100 customer routes, and will keep its headquarters and management team in Atlanta after the transaction closes.

Cott decided earlier this year to look for acquisitions to expand its product offerings and reduce a dependence on large-format retailers, Fowden said.

“DS Services was at the top of that list,” he said.

ADVERTISEMENT

He said that Cott also had become aware that an initial public offering was being considered that would have valued DSS at about 7.5 to 8 times Ebitda.

“We believe this business has been acquired at an attractive, value-creating price for Cott shareholders,” Fowden added.

Credit Suisse Group AG acted as financial adviser to Cott, while Drinker Biddle & Reath LLP provided legal advice, according to today’s statement. Barclays Plc was DSS’s financial adviser and Paul, Weiss, Rifkind, Wharton & Garrison LLP was its legal adviser.

Bloomberg, edited by ESM

Get the week's top grocery retail news

The most important stories from European grocery retail direct to your inbox every Thursday

Processing your request...

Thanks! please check your email to confirm your subscription.

By signing up you are agreeing to our terms & conditions and privacy policy. You can unsubscribe at any time.