Reed's, Jones Soda Enter Into Potential Merger Deal
Jones Soda CEO Ricci to depart
LOS ANGELES & SEATTLE -- Reed's Inc., maker of sodas in natural food stores nationwide, and Jones Soda Inc., a leader in the premium soda category and known for its unique branding and innovative marketing, have entered into a letter of intent (LOI) regarding a merger, with Reed's as the surviving company. The combination would unite a number of leading premium soda brands, such as Reed's Ginger Brew, Virgil's and Jones Soda.
The proposed merger would also provide the two companies with the opportunity to realize the potential benefits of increased size and scale, [image-nocss] as well as cost efficiencies in several aspects of the combined business, including administration, operations, and customer interface. The strength of the Reed's portfolio in the direct selling channel combined with Jones Soda's strong national distributor structure allows for future growth opportunities for each company's brands across these channels.
Chris Reed, founder, chairman and CEO of Reed's, said, "We have watched Jones for years and have been impressed with its innovative marketing programs, strong brand recognition and loyal customer following. I am confident that our portfolio of brands will benefit from Jones Soda's marketing savvy, as well as its organization's deep mainstream distribution relationships. At the same time, we believe our strong infrastructure and operational capabilities will help drive important efficiencies through Jones Soda's supply chain. With minimal customer and demographic overlap between our combined brands, we believe this transaction also provides us with compelling merchandising and growth opportunities in the years ahead."
Jones Soda retained North Point Advisors in February 2009 to assist in evaluating the company's strategic alternatives. Since that time, Jones has reviewed a broad range of strategic alternatives to enhance shareholder value.
Rick Eiswirth, chairman of Jones Soda Co., said, "Over the past year, we have taken numerous steps to reduce our expenses and reinvigorate our top line in order to return to profitability. Unfortunately, the challenging economic environment combined with our current capitalization has made it extremely difficult to operate on a standalone basis. After evaluating a range of strategies aimed at improving our outlook, our board of directors determined that the proposed merger with Reed's offers our shareholders the most compelling long-term benefits of the available alternatives."
He added, "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."
Jones Soda also announced that Joth Ricci will be stepping down as CEO effective April 2, 2010, in order to pursue other business opportunities.
The nonbinding provisions of the LOI contemplate a merger transaction in which Reed's would acquire Jones Soda for a combination of cash and Reed's common stock. The shareholders of Jones Soda would receive an aggregate of 4.5 million shares of Reed's common stock (or approximately 0.17 of a share of Reed's common stock per share of Jones Soda common stock based on current Jones Soda shares outstanding) and cash of 10 cents per share of Jones Soda common stock (or an aggregate of approximately $2.56 million based on current shares outstanding). There is no financing contingency as Reed's would use its best efforts to secure the cash portion of the consideration, and if it is unable to secure all or part of this cash, any deficit would instead be paid in additional shares of Reed's common stock, with the aggregate number of shares equal to the amount of the cash deficit divided by $1.70.
Under the binding provisions of the LOI, Reed's and Jones Soda have until April 5, 2010, to negotiate a definitive agreement on an exclusive basis. If Jones Soda receives an unsolicited acquisition, financing or other strategic transaction proposal that the board of Jones Soda determines is superior to the proposed merger transaction with Reed's, then Jones Soda may terminate the LOI and reimburse Reed's for its third-party out-of-pocket expenses (not to exceed $75,000).
The transaction would also be subject to approval of the shareholders of both Jones Soda and Reed's.
Los Angeles-based Reed's makes sodas sold in natural food markets nationwide and is currently selling in 10,500 supermarkets in natural foods and mainstream. Its six nonalcoholic Ginger Brews are brewed, not manufactured, and use fresh ginger, spices and fruits in a brewing process that predates commercial soft drinks. Also, it owns a natural foods root beer line, the Virgil's Root Beer product line, and a natural foods cola line, the China Cola product line. Recently, Reed's added the Sonoma Sparkler brands, a celebration drink with an established customer base. Other product lines include Reed's Ginger Candies and Reed's Ginger Ice Creams.
Reed's products are sold through specialty gourmet and natural food stores, mainstream supermarket chains, retail stores and restaurants nationwide and in Canada.
Headquartered in Seattle, Jones Soda markets and distributes premium beverages under the Jones Soda, Jones Pure Cane Soda, Jones 24C, Jones GABA, Jones Organics, Jones Naturals and Whoopass Energy Drink brands and sells through its distribution network in markets primarily across North America. A leader in the premium soda category, Jones is known for its variety of flavors and innovative labeling technique that incorporates changing photos sent in from its consumers. Jones Soda is sold through traditional beverage retailers.