‘BITTERSWEET’
COTT SELLS ITS SODA POP BUSINESS FOR US$ 1.25B TO FOCUS ON COFFEE AND WATER.
Cott’s sale of its legacy soda pop supply business is “bittersweet,” its chief executive said Tuesday, but will allow the beverage company to focus on its more profitable and growing market segments of coffee and water.
The sale of Cott’s traditional beverage manufacturing business to Netherlands- based drinks bottler Refresco for US$1.25 billion cements the Toronto company’s successful and decisive strategic shift away from its longtime business of supplying private label house-branded carbonated drinks, juice and flavoured waters to retailers such as Wal-Mart.
“Over the years Cott has been undergoing a transition from what many investors would historically call a private label soda pop company to a higher-margin business with much lower customer, product and channel concentration,” CEO Jeremy Fowden told a conference call with analysts to discuss the deal. The “new Cott,” will focus on “betterfor- you products” in water, coffee and filtration services, he said.
Cott’s beverage manufacturing business accounts for about US$ 1.7 billion of its US$ 3.2 billion in annual sales, and also produces drinks for clients on contract such as Monster Energy drinks.
The company began its history in Canadian soda pop in 1952, when Montreal clothier Harry Pencer began importing the Cott regional New England brand of flavoured sodas into Quebec. Pencer acquired a bottling facility in 1955 and began manufacturing the beverages after licensing the Canadian rights to the Cott label, forming Cott Beverages Ltd.
But the deal that cut the bulk of its ties to pop gave Cott’s shares a 6.4 per cent boost on Tuesday — they closed at $ 19.41 in Toronto — coming after more than a decade of declines in carbonated beverage consumption as newer drinks have usurped the popularity of colas and tonics.
In the U. S., Cott’s biggest market, consumer demand for carbonated soft drinks has fallen for 12 straight years, according the industry tracker Beverage Digest. Total volume for carbonated soft drinks dipped 0.8 per cent in 2016, following a drop of 1.2 per cent in 2015. Since 2004, carbonated soft drinks have sold 1.6 billion fewer cases in volume, to 8.6 billion cases last year. In the meantime, growth has been strong in bottled water, with Nestle’s Poland Spring and PepsiCo’s Aquafina growing 11 per cent and Coca- Cola’s Dasani up 5.3 per cent.
The trend has also played out in Canada, with soft drink volumes falling at a rate of 2 per cent per year over the past five years, said Robert Carter, executive director of food service at market research firm NPD Group. “Consumers are moving away from traditional carbonated, sugary drinks to healthier products such as water and niche drinks such as coconut waters, fruit smoothies and cold coffee drinks,” he said.
After the sale, more than 90 per cent of Cott’s revenue will stem from coffee, tea and water, as a home and office delivery company for water, coffee, tea and filtration services.
“The fragmented nature of these growth markets should allow Cott to remain active with accretive tuck-in acquisitions, while the com- pany’s more nimble balance sheet post the sale of its traditional business will allow Cott to remain opportunistic should larger acquisition opportunities materialize,” Canaccord analyst Derek Dley said in a note to clients Tuesday.
In 2014, Cott bought Atlanta- based DS Services of America Inc. for US$1.25 billion to become the biggest publicly traded water supplier to U.S. homes and offices.
Stifel analyst Mark Swartzberg said the deal “leaves Cott in businesses that are structurally less challenging than private label soda,” and will simplify the duties of senior management, allowing the company to focus on its newer businesses.
The sale to Refresco, expected to close in the second half of 2017, will allow Cott to repay some borrowings, reducing its net debt to less than 3.56 times adjusted profit. Last year, Refresco expanded into the U. S. after acquiring bottler Whitlock Packaging for US$ 129 million.
The sale includes Cott’s beverage manufacturing in North America, U. K. and Mexico but the company is still holding on to its classic RC Cola brand and its related operations.