L.A. Beverage Maker Brews Up Acquisition Deal

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With one gulp, natural soda bottler Reed’s Inc. will more than double its revenue.

Last week the L.A. company announced its intent to acquire Jones Soda Inc., a Seattle-based drink maker known for unconventional marketing techniques. The price was $9.8 million in stock and cash. The two companies have until April 5 to negotiate a final agreement, which would face approval by both companies’ shareholders.

Reed’s Chief Executive Christopher Reed told the Business Journal that the acquisition will increase the beverage maker’s annual revenue from $20 million to more than $40 million and his company will reach profitability for the first time since going public in 2005.

“There are a lot of synergies but a different client base between the companies,” Reed said. “We are the Whole Foods and Trader Joe’s segment, and they are the mainstream supermarkets, delis and mom-and-pop stores.”

Reed estimated that the combined companies will save about $4 million annually by consolidating administrative staff. While the companies may streamline manufacturing operations on the East Coast, Reed plans to maintain separate plants in Los Angeles County, one owned by Reed’s and another contract bottler for Jones.

But more importantly, Reed’s will gain a sophisticated marketing operation at Jones. To attract consumers’ attention, the company has developed oddball seasonal flavors such as Turkey and Gravy for Thanksgiving, Perspiration for football season and Spooookiwi for Halloween. Jones also invites customers to send in photos, and it prints some of them on its packaging. Such techniques have gotten the sodas mentioned on late-night TV talk shows.

Marty Molina, chief operations officer at beverage consultancy Power Brands in Beverly Hills, said the merger was a good match in terms of the companies’ cultures.

“It’s good to see Jones won’t lose its personality with Reed’s,” Molina said. “Both of these are known to be quirky companies.”

Under terms of the tentative deal, Reed’s would give Jones shareholders 0.17 shares of Reed’s stock and 10 cents in cash for each Jones share. At the time of the announcement, the Reed’s offer amounted to 37 cents per share, a 56 percent discount off Jones’ 84 cents closing price March 8.

The low-ball price already has inspired two shareholder lawsuits on behalf of Jones investors. But Jones has been unprofitable since 2007. In the most recent quarter, the company reported a loss of $1.5 million and a drop in revenue of 18 percent from a year earlier.

“Unfortunately, the challenging economic environment combined with our current capitalization has made it extremely difficult to operate on a standalone basis,” Jones Chairman Rick Eiswirth said in a statement. “We believe the combination of Jones and Reed’s will create a substantially larger beverage business with a more powerful operating platform and a brighter future.”

In the two days after announcement of the acquisition, Reed’s stock price increased 10 percent; Jones’ price declined 36 percent.

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