Refresco to buy Cott’s ‘traditional drinks’ business for $1.25bn

As part of a strategy to move towards drinks categories with topline growth, a more diverse channel and customer base, higher margins, and stronger free cash flow, Cott Corporation is to sell its Cott Beverages division to Refresco in The Netherlands for US$1.25 billion.

The move will make Refresco the leading independent manufacturer of drinks for retailers, brand owners and distributors, with businesses in North America, Mexico, the UK and Europe.

The ‘traditional drinks’ business, with annual sales of $1.7bn, earnings of $136m EBITDA and relationships with more than 500 leading retailers, has 19 production sites in the US, four in Canada, one in Mexico and five in the UK. Combined production volume is 12 billion litres.

The deal with Refresco does not include the branded RD Cola business in the US.

Commenting on the deal, Jerry Fowden, Cott’s chief executive, said: “After a thorough strategic review in 2013, we developed an accelerated diversification and acquisition strategy in order to transform our company and create a business weighted towards better for you products in categories with topline growth, a more diverse channel and customer base, higher margins, and strong free cash flow generation.

“This transaction is very much in line with this strategy, and enables our traditional business to become an integral part of a larger global beverage manufacturing company that pursues the same high customer service and quality standards Cott has been known for throughout its history.”

Cott will be concentrating on growth in what it sees are more lucrative sectors. Fowden continued: “The sale of Cott’s traditional business substantially accelerates our ability to deleverage the business and positions us well to grow our water, coffee, tea and filtration businesses both organically and through value accretive tuck-in acquisitions while also giving us the optionality to expand our platforms through larger scale acquisitions if and when the right value enhancing opportunities present themselves.”

Cott Beverages has been a leading manufacturer of a diverse mix of beverages for the retail trade and branded manufacturers for 60 years. It produces beverages in a variety of packaging formats and sizes, including carbonated soft drinks, 100 per cent shelf stable juice and juice-based products, energy drinks, clear, still and sparkling flavoured waters, sports drinks, new age beverages, ready-to-drink teas, freezables and ready-to-drink alcoholic beverages.

Cott’s traditional private label soda and juice business has been in decline in recent years so the company has made some bold moves, including acquisitions, in the water and coffee space to lower corporate risk and improve cash flow. Although it impacted the company’s bottom line in the short-term, the strategy has reduced exposure to the structurally challenged private label CSD and juice categories. Cott’s stock has been trading higher of late.

The deal will greatly enlarge Refresco’s operations. Currently it produces 6.5bn litres of drinks a year with sales of €2.1bn ($2.5bn) of which 9 per cent is in the US.

Refresco’s chief executive Hans Roelofs says that the company has been focused on growing its platform in both North America and Europe

Hans Roelofs, chief executive of Refresco, said: “We are excited to welcome Cott Beverages to the Refresco family. We have been focused on growing our platform in both North America and Europe and this transaction is a significant enhancement to our buy and build strategy which will provide Refresco with enlarged scale, synergies, and savings alongside Refresco’s manufacturing footprint, geographic diversity, product range and customer service.

“We will now have a well-balanced portfolio with exposure to all categories for retailers in North America and Europe in addition to a scale contract manufacturing footprint throughout these geographies from which to continue to grow both organically and by pursuing our buy and build strategy.”

Refresco rejected a $1.5bn takeover bid from French private equity firm PAI Partners in April 2017, although the company was quick to add that the Cott play is not a strategy to divert private equity interest.