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Cott announces the acquisition of Primo Water Corporation

TORONTO and TAMPA, Fla. and WINSTON-SALEM, N.C., U.S. – Cott Corporation yesterday announced that it has entered into a definitive agreement pursuant to which Cott will acquire Primo Water Corporation (Nasdaq:PRMW) (“Primo”) for $14.00 per share payable in cash and stock (or a combination thereof) at the election of Primo’s stockholders, subject to the terms of the merger agreement.

The transaction, which values Primo at approximately $775 million, was unanimously approved by both the Cott and Primo Boards of Directors. Primo is a leading provider of water dispensers, purified bottled water, and self-service refill drinking water in the U.S. and Canada.

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 Primo Water Corporation to reflect the leading position we have in the growing and attractive water market with the opportunity to be revalued in line with our water peers,” commented Tom Harrington, Cott’s Chief Executive Officer. “As Primo and Cott have been strategic partners for six years, we expect a smooth transition and integration.”

Billy D. Prim, Primo’s interim CEO and Executive Chairman, commented, “This combination of two highly recognized water companies creates compelling value for all stakeholders, including our customers, employees, shareholders and suppliers. The newly created company will have approximately $2.0 billion in combined water sales and a presence in 21 countries worldwide. We are excited about the opportunity to provide sustainable hydration solutions to more people than either company could have done alone.”

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 Mr. Harrington.

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 $5.04 in cash and 0.6549 common shares of Cott, or, at the election of Primo’s stockholders, for $14.00 in cash or 1.0229 common shares of Cott, subject to the proration procedures set forth in the merger agreement.

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 $216 million in cash to Primo stockholders, funded with the proceeds of a new term debt issuance or proceeds from the sale of S&D Coffee and Tea, and issue approximately 26.8 million new shares to Primo stockholders. Cott has obtained financing commitments of up to $400 million from an affiliate of Deutsche Bank Securities Inc. to support the payment of the acquisition price and the refinancing of Primo’s debt.

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, Billy D. Prim and Susan E. Cates, current members of Primo’s board of directors, will join Cott’s board following the closing.

The transaction is expected to close in March 2020, subject to the conditions to the exchange offer and other customary closing conditions.

Deutsche Bank Securities Inc. acted as financial advisor to Cott and Drinker Biddle & Reath LLP and Goodmans LLP provided legal counsel to Cott. Goldman Sachs acted as financial advisor to Primo and K&L Gates LLP provided legal counsel to Primo.