NEW YORK (The Deal) -- One Cott (COT) shareholder believes the parent company of several soda and non-carbonated drinks brands could fetch nearly $1.8 billion if it can find a buyer, even as waning demand for soda and stiff competition from players including PepsiCo (PEP) and Coca-Cola (KO) continue to weigh on the private-label beverage maker.
"Private label is challenged. Carbonated soft drinks are challenged. [Cott's] customers are challenged," said Jack Murphy, a portfolio manager of Levin Capital Strategies, in a phone interview. "Taking out the public equity is one option. Cash flow is so significant, there has to be people looking at that option."
Levin, a New York-based hedge fund, owns about 5.4% of Cott's outstanding shares.
In response to market speculation that it was undergoing a strategic review, Cott confirmed in a Feb. 5 statement that it had retained Credit Suisse Group to help evaluate alternatives.
Though specific options weren't identified, Murphy thinks that if a leveraged buyout transaction were to take place, its equity would be worth significantly more than the $8 or so that Cott's shares are currently trading for on the New York Stock Exchange.
More specifically, the investor believes Cott could demand about $14 a share, which would represent a 75% premium over its current stock price. Given its approximately 94.23 million shares outstanding, that would value a deal at about $1.78 billion.
Murphy based the significant premium on Cott's capability to cut costs and take advantage of the extra capacity to boost cash flow, but didn't say if he based it on a multiple of Ebitda or other financial metric.