Cott Investor Says LBO is Best Way to Pop Share Value
NEW YORK ( The Deal ) -- One Cott
"Private label is challenged. Carbonated soft drinks are challenged. [Cott's] customers are challenged," said Jack Murphy, a portfolio manager of Levin Capital Strategies , in a phone interview. "Taking out the public equity is one option. Cash flow is so significant, there has to be people looking at that option."
Levin, a New York-based hedge fund, owns about 5.4% of Cott's outstanding shares.
In response to market speculation that it was undergoing a strategic review, Cott confirmed in a Feb. 5 statement that it had retained Credit Suisse Group to help evaluate alternatives.
Though specific options weren't identified, Murphy thinks that if a leveraged buyout transaction were to take place, its equity would be worth significantly more than the $8 or so that Cott's shares are currently trading for on the New York Stock Exchange .
More specifically, the investor believes Cott could demand about $14 a share, which would represent a 75% premium over its current stock price. Given its approximately 94.23 million shares outstanding, that would value a deal at about $1.78 billion.
Murphy based the significant premium on Cott's capability to cut costs and take advantage of the extra capacity to boost cash flow, but didn't say if he based it on a multiple of Ebitda or other financial metric.
Cott most recently generated $77.2 million in free cash flow for the third quarter ended Sept. 28, representing cash flow per share of approximately $0.82.
Murphy believes cash flow per share can exceed $1 a share through cost cutting and other measures.
As of Sept. 28, Cott's cash balance was $125.8 million and debt totaled $608.1 million.
Cott, with headquarters in Toronto, makes and distributes a wide array of carbonated beverages including soft drinks, juices, flavored waters, energy drinks and ready-to-drink teas. Cott is best known for its Royal Crown Cola International, or RC Cola, brand, which it owns everywhere outside North America. ( Dr Pepper Snapple Group Inc.
Though Wal-Mart Stores
The company has since faced additional headwinds as demand for soda has declined and larger players such as Pepsi and Coke continue to dominate the market.