Struggling Canadian private label business Cott Corp’s stock jumped nearly 14% on 26 May following reports that a US hedge fund wanted to shake up the leadership of the company and raising questions about a possible takeover.
Cott stock, which has been on the slide after years of losses due to rising costs and changing consumer tastes, rose $0.44 (13.9%) to close at $3.61 on the TSX after Crescendo Partners of New York disclosed that it had purchased an 8.7% stake in the company and is to seek changes in its management and operations.
Cott shares were worth over $17 one year ago but were traded as low as $1.74 in March. At the current price, its market value is estimated at around $250 million.
According to Crescendo Partners, former Wal-Mart Canada Chief Executive Mario Pilozzi has agreed to serve as a director or an executive of Cott if Crescendo gains seats on its board, while Csaba Reider, a former Cott executive, is willing to become the new CEO. Mark Benadiba, previously Vice President of Cott’s North American operations, would be willing to act as chairman.
“This is the first shot in a campaign to persuade other shareholders that their team of Benadiba as Chairman and Reider as President would do a better job of running the company,” said Peter Holden, an analyst with Veritas Investment Research.
Despite rumours during 2007 that Cott may have been looking to merge with the newly formed Dr Pepper Snapple Group, Holden said he didn’t see “any obvious synergies” with that company.
Shareholders want a viable plan*
“It would be other investors,” he said, noting that Cott’s stock price, once worth as much as $40 per share, is now stuck in the single digits.
“If anybody can present a viable plan for improving operations, shareholders will listen,” he said. “The board would listen. The issue is what they propose.”
Cott is currently run by interim CEO David Gibbons, who abruptly replaced Brent Willis in March as the company’s fourth Chief Executive in five years.
The company has said it believes a focus on new products such as fortified bottled water and energy drinks will aid its turnaround. But to Holden, Cott’s problems lie in surging commodity prices which have made costs soar for cans, plastics, corn syrup and other inputs, along with an inability to pass those costs through to customers.
“The issue is not who’s running it, but how are they going to turn this around – how are they going to increase margins? Because if you can’t increase margins on domestic soda pop, you can’t increase the value of the company,” Holden said. “And margins of domestic soda pop have been declining for five years now.”
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