Cott Announces the Acquisition of Primo Water Corporation and Continues its Transition Into a Pure-Play Water Solutions Provider
Jan 13, 2020
Cott to Rebrand its Corporate Name to Primo Water Corporation Following the Acquisition
The combination of Cott and Primo, along with the recent announcement of Cott’s evaluation of certain strategic alternatives for its S&D Coffee and Tea (“S&D”) business, including a sale of S&D, will transition Cott into a pure-play water company.
“I am excited, as 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 and drives long-term value creation for our shareholders. As we turn to our new business model, we are taking the opportunity to rebrand our company as
COMPELLING STRATEGIC AND FINANCIAL RATIONALE
The acquisition of Primo and Cott’s continued transition into a pure-play water solutions provider is expected to:
- Provide a singular water-focused company, positioned to succeed in higher growth and higher margin water categories as a rebranded entity with the opportunity to be revalued in line with our water peers.
- Create a company with estimated Pro Forma Q3 2019 LTM Revenue and Adjusted EBITDA of the combined pure-play water business (Cott plus Primo less S&D) of approximately
$2 billion and$324 million , respectively. - Enhance topline growth and adjusted EBITDA margin.
- Expand channel diversification and consumer reach with the ability to offer Primo’s products and services across Cott’s 21-country footprint as well as increase route density and geographic footprint in refill/filtration.
- Strengthen the Company through continued product and service innovation, marketing partnerships, and accretive tuck-in acquisitions all built on a sustainable long-term growth platform.
- Provide cost synergies of approximately
$35 million over a three-year period resulting in a post synergy multiple of 8.4x 2020E adjusted EBITDA.
“The acquisition of Primo meets all of our quantitative and qualitative acquisition criteria, and we expect will increase revenue growth and EBITDA margins, be accretive to earnings per share and deliver a cash on cash IRR above our cost of capital,” commented
TRANSACTION DETAILS
Under the terms of the merger agreement, a wholly-owned subsidiary of Cott will promptly commence an exchange offer to acquire all of the outstanding shares of Primo’s common stock, and each share of Primo common stock will be exchanged for
The consummation of the exchange offer is subject to various conditions, including a minimum tender of a majority of outstanding shares of Primo common stock and other customary conditions. Following consummation of the exchange offer, that subsidiary will merge with and into Primo and Primo will become a wholly-owned subsidiary of Cott. Any eligible shares not validly tendered will be cancelled and converted into the right to receive the same price per share offered in the exchange offer. Upon completion of the acquisition, Primo shares will cease to be traded on Nasdaq.
Cott will pay a total of approximately
In connection with the execution of the merger agreement, Primo directors and officers who are beneficial owners of 10.4% of Primo equity have entered into support agreements with Cott pursuant to which they have agreed to tender their common stock in the exchange offer and elect to receive the stock consideration in respect of their common stock.
Pursuant to the terms of the merger agreement,
The transaction is expected to close in
TRANSACTION CONFERENCE CALL
International: (647) 427-7450
Conference ID: 9697976
A slide presentation and live audio webcast will be available through Cott’s website at http://www.cott.com. The conference call will be recorded and archived for playback on the investor relations section of the website for a period of two weeks following the event.
As a result of the announcement, Primo will cancel today’s attendance at the ICR conference, including their presentation and one on one meetings. In lieu of their presentation Primo will participate in today’s Cott conference call and will reschedule their attendance at the
ABOUT
Cott is a water, coffee, tea, extracts and filtration service company with a leading volume-based national presence in the North American and European home and office delivery industry for bottled water, and a leader in custom coffee roasting, iced tea blending, and extract solutions for the
ABOUT
Non-GAAP Measures
To supplement its reporting of financial measures determined in accordance with GAAP, Cott utilizes certain non-GAAP financial measures. Cott utilizes adjusted EBITDA and adjusted EBITDA margin on a stand alone and pro forma basis to separate the impact of certain items from the underlying business. Cott also uses pro forma LTM revenue and adjusted EBITDA to provide a comparison of full year periods. Because Cott uses these adjusted financial results in the management of its business, management believes this supplemental information is useful to investors for their independent evaluation and understanding of Cott’s underlying business performance and the performance of its management. With respect to our expectations of performance of Primo as it is being integrated, reconciliations of 2020 estimated adjusted EBITDA, earnings accretion and cash on cash IRR are not available, as we are unable to quantify certain amounts that would be required to be included in the relevant GAAP measures without unreasonable effort. We expect that the unavailable reconciling items, which primarily include taxes, interest costs that would occur if the company issued debt, costs to capture synergies and phasing of capex, could significantly affect our financial results. These items depend on highly variable factors and any such reconciliations would imply a degree of precision that would be confusing or misleading to investors. We expect the variability of these factors to have a significant, and potentially unpredictable, impact on our future GAAP financial results. The non-GAAP financial measures described above are in addition to, and not meant to be considered superior to, or a substitute for, Cott’s financial statements prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this earnings announcement reflect management’s judgment of particular items, and may be different from, and therefore may not be comparable to, similarly titled measures reported by other companies.
Additional Information and Where to Find It
This communication relates to a pending business combination between Cott and Primo. The exchange offer referenced in this press release has not yet commenced. This press release is for informational purposes only and does not constitute an offer to purchase or a solicitation of an offer to sell shares, nor is it a substitute for any offer materials that the parties will file with the
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and applicable Canadian securities laws conveying, among other matters, management’s expectations as to the future based on plans, estimates and projections at the time these statements are made. Forward-looking statements can otherwise be identified by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “feel,” “forecast,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “would,” “will,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The forward looking statements in this press release include, but are not limited to, statements related to the ability of the parties to consummate the proposed transactions on a timely basis or at all and the satisfaction of the conditions precedent to the consummation of the proposed transactions (including a sufficient number of Primo shares being validly tendered into the exchange offer to meet the minimum condition), the completion of the anticipated financing of the transaction on a timely basis if at all and on the terms currently proposed, the anticipated timing of the proposed transactions, the expectations in respect of the financial profile of the combined company and expected synergies associated with the transactions, including the expected synergies outlined in this press release, and any contribution of Primo’s acquisition to Cott’s performance, the risk of litigation and regulatory action related to the proposed transaction, and the potential impact the acquisition will have on Primo or Cott and other matters related to either or both of them. Forward-looking statements involve inherent risks and uncertainties and the Company cautions you that a number of important factors could cause actual results to differ materially from those contained in any such forward-looking statement. The forward-looking statements are based on assumptions regarding management’s current plans and estimates. Factors that could cause actual results to differ materially from those described in this press release include, among others: the degree of success of Cott’s intended exploration of strategic alternatives for Cott’s S&D Coffee and Tea Business; changes in expectations as to the closing of the transaction and the timing thereof if at all, including timing and changes in the method of financing the transactions; changes in estimates of future earnings and cash flows; expected synergies and cost savings are not achieved or achieved at a slower pace than expected; integration problems, delays or other related costs; retention of customers and suppliers; the cost of capital necessary to finance the transaction; the satisfaction of the conditions precedent to the consummation of the proposed transactions (including a sufficient number of Primo shares being validly tendered into the exchange offer to meet the minimum condition); the negative effects of the announcement or the consummation of the proposed transactions on the market price of Cott’s common stock or on Cott’s operating results; the risk of litigation and regulatory action related to the proposed transaction; unanticipated changes in laws, regulations, or other industry standards affecting the companies and other risks and important factors contained and identified in Cott’s and Primo’s filings with the
SUPPLEMENTARY INFORMATION – NON-GAAP – 2020 SYNERGIZED ADJUSTED EBITDA MULTIPLE | |||||||||||
(in millions of | |||||||||||
Unaudited | |||||||||||
Estimated 2020 Adjusted EBITDA | $ | 57 | |||||||||
Expected synergies (three-year capture by 2020) | 35 | ||||||||||
2020 synergized adjusted EBITDA | $ | 92 | |||||||||
Approximate purchase price | 775 | ||||||||||
2020 synergized adjusted EBITDA multiple | 8.4 | X |
SUPPLEMENTARY INFORMATION – NON-GAAP – PRO FORMA REVENUE | |||||||||||||||
(in millions of | |||||||||||||||
LTM | |||||||||||||||
Unaudited | |||||||||||||||
LTM | Cott Consolidated | S&D Coffee and Tea | Elimination(1) | Pro Forma | |||||||||||
Revenue | $ | 2,365.9 | $ | 599.2 | $ | 303.3 | $ | (50.0) | $ | 2,020.0 | |||||
(1)Elimination of estimated pro forma intercompany revenue |
SUPPLEMENTARY INFORMATION – NON-GAAP – EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION & AMORTIZATION | ||||||||||||||
(EBITDA) | ||||||||||||||
(in millions of | ||||||||||||||
LTM | ||||||||||||||
Unaudited | ||||||||||||||
LTM | Cott Consolidated | S&D Coffee and Tea(1) | Pro Forma | |||||||||||
(in $ millions) | ||||||||||||||
Net income | $ | (3.1) | $ | 14.1 | $ | 3.9 | $ | (13.3) | ||||||
Interest expense, net | 77.9 | – | 11.2 | 89.1 | ||||||||||
Income tax expense (benefit) | 2.7 | – | – | 2.7 | ||||||||||
Depreciation & amortization | 191.0 | 23.5 | 27.7 | 195.2 | ||||||||||
EBITDA | $ | 268.5 | $ | 37.6 | $ | 42.8 | $ | 273.7 | ||||||
Acquisition and integration costs | 14.7 | 0.2 | 2.4 | (2) | 16.9 | |||||||||
Share-based compensation costs | 10.7 | 0.5 | 4.4 | 14.6 | ||||||||||
Loss on diposal of property, plant and equipment, net | 10.2 | 0.8 | – | 9.4 | ||||||||||
Foreign exchange and other losses (gains), net | 4.7 | – | – | 4.7 | ||||||||||
Other | 4.3 | 0.8 | 0.7 | 4.2 | ||||||||||
Adjusted EBITDA | $ | 313.1 | $ | 39.9 | $ | 50.3 | $ | 323.5 | ||||||
(1)S&D Coffee and Tea’s net income excludes impact of interest expense, income tax expense (benefit) and intercompany cost allocations as this information is currently unavailable | ||||||||||||||
(2)Primo’s |
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