Jones Soda Bought Cheap!

[Parsad]

Jones Soda was sold off for $10M to Reed's.  Not sure why Coke or Pepsi didn't get into this one...would have been a great little addition for either at a good price.  Cheers!

 

http://money.cnn.com/2010/03/09/smallbusiness/jones_soda/index.htm?source=cnn_bin&hpt=Sbin

[oldye]

Wow...this thing had a market cap north of 500 million in 2007, as of Q3 had 6 million on hand, 37 million in revenue and no debt

[Rabbitisrich]

But they also had $9 million in throughput liabilities, shrinking inventories, and a gross profit that barely covered G & A, and their credit line expired in late 2008.

 

I don't think that this failure reflects incompetence on the part of management. They must have seen the writing on the wall for glass and sugar prices. It's simply a product that required a fortress balance sheet to make it through 3-5 lean years.

 

At this point, valuing Reed's purchase probably requires more of a visionary approach than a traditional Marty Whitman style valuation. Was Jones simply a product of excess cash and sparce fear, or does it have a strong cachet?

[valuecfa]

This is a steal for the right buyer. Reed's, IMO, is not the right buyer. I would not be surprised if this acquisition takes Reeds under, given their capital base. It is a gutsy move for Reeds. $5 bucks says Reeds is biting off more than they can chew. I give them 2 years to pull off a miracle turnaround.

[Rabbitisrich]

This is a steal for the right buyer. Reed's, IMO, is not the right buyer. I would not be surprised if this acquisition takes Reeds under, given their capital base. It is a gutsy move for Reeds. $5 bucks says Reeds is biting off more than they can chew. I give them 2 years to pull off a miracle turnaround.

 

Yeah, good point. However, Reed's smartly retained the right to offer shares in lieu of cash if they can't find a proper financing solution. It's interesting that there hasn't been an explicit mention of synergy benefits, given that Jones shareholders might not necessarily feel that the game is up for them. Reed's isn't a cash flow monster; they must envision some way to reduce the distribution and promotion expenses.

 

 

 

 

From Reed's prospectus supplement filed on 02/22/10 (original prospectus dated 10/06/09):

 

We believe that the Company currently has the necessary working capital to support existing operations through 2010; however, we foresee an additional requirement for capital needed to fund our seasonality, product launches and other growth plans.  Our primary capital source will be cash flow from operations, as we gain profitability in 2010.  During October 2009, we raised net proceeds of approximately $563,000 from an offering of our shares.  In November 2009, we entered into an agreement to replace our revolving line of credit, which more fully values our assets for collateral and enables increased borrowing for working capital purposes.  We recently completed a rights offering to our existing shareholders followed by a reoffering to the public of our Series B Convertible Preferred Stock that provided additional working capital to the Company of approximately $1,068,420..

 

 

 

 

[twacowfca]

Please help me understand Jones Soda and Reeds.  As background, I know that there are small bottlers that  have survived for many decades because they have niche brands and loyal customers.  I am such a customer.  The soda I like has enormous pricing power.  It's a Gingerale that's made with real Ginger and real sugar.  It has a nice bite that's lacking in the major brands.  It comes in an old fashioned glass bottle with a screw off cap.  Customers who like it gladly pay 50% to 100% more for it than they would pay for other brands.  Does Jones Soda have latent pricing power?

[ragnarisapirate]

Please help me understand Jones Soda and Reeds.  As background, I know that there are small bottlers that  have survived for many decades because they have niche brands and loyal customers.  I am such a customer.  The soda I like has enormous pricing power.  It's a Gingerale that's made with real Ginger and real sugar.  It has a nice bite that's lacking in the major brands.  It comes in an old fashioned glass bottle with a screw off cap.  Customers who like it gladly pay 50% to 100% more for it than they would pay for other brands.  Does Jones Soda have latent pricing power?

 

I think so, in the rights stores, yes- especially among younger people (high schoolers and college kids). With that said, the stuff didn't do well when it was being sold in wal-mart, it just about broke the company. It is kind of a boutique soda that should probably only be sold in coffee shops, organic food stores, gas stations, and tourist stops.

[Mark Jr.]

I have always had a soft spot for Reeds as a company, 'cause I've been a junkie for China Cola for over 20 years. Everybody always talks about the impossibility of ever challenging Coke, but I always thought China Cola had a shot at making some inroads as a "trendy" niche alternative. Everybody I've ever given a china cola to has been hooked instantly and I drive across town once a month to buy a case at the only place I know in Toronto that stocks it - when they can get it. The staff there tells me it simply "flies off the shelves" when it's in stock.

 

But REEDs never struck me as a compelling investment, granted I haven't looked at it in a couple years, but the last time I looked I seem to recall it looked pretty weak to me. A lot of debt and not a whole lot of free cashflow.

 

This Jones deal is pretty interesting. It may be a make-or-break move for them.

 

I wonder if they'll try to take out Hanks Beverages down the road (assuming they manage to digest this acquisition).

[Aberhound]

My 10 year old daughter wanted Uggs boots and I noticed that the stock of the manufacturer has soared. I have also noticed that when we go into the store and there is a whole wall of pop she wants the "Jones". Do other parents notice the same preference?

 

 

[tyska]

I guess the story isn't finished yet.

 

http://money.cnn.com/2010/03/22/smallbusiness/jones_soda/index.htm?source=ft

 

Dan

[Ballinvarosig Investors]

Jones Soda is sold in quite a few outlets here in Ireland, so I imagine it's available elsewhere in Europe. I must say I'm rather surprised that this worldwide brand has a market cap of only $16 million. I'm even more surprised that one of the major drinks companies haven't gone for Jones, with an existing bottling facility and distribution network, they could turn Jones into a cash-cow.