|
Reed's
Inc. chief executive Chris Reed, left,
puts tags on the necks of cream-soda
bottles at his bottling plant in Los
Angeles recently. The tags seek investors
for his companys IPO. (AP / Damian
Dovarganes) |
Will
soda IPO fizz or fizzle?
Calif. entrepreneur
hoping to raise $8 million for natural beverage
firm
By
Gary Gentile / The Associated Press
Los
Angeles - Chris Reed sits back
in his cluttered office, his graying hair
in a ponytail, wearing a green and yellow
tie-dyed T-shirt that bears the name of
the beverage company he started 15 years
ago and now wants to take public.
Around
him are his products: ginger ale, lemon
guava ginger brew and some sidelines -
ginger ice cream, crystalized ginger candy.
"I'm a ginger freak," he says.
Reed, 47, is hoping his loyal customers
are as enthusiastic about the prospects
of Reed's Inc. as they are about its drinks.
Tags
placed over the necks of soda bottles
are offering customers the chance to buy
shares for $4 each directly from the company
in an initial public offering that Reed
hopes will raise as much as $8 million.
It's an unusual approach that has worked
in the past - most notably for Ben &
Jerry's ice cream, which was later sold
to Unilever NV, and Boston Beer Co., which
brews Samuel Adams.
But
some analysts say Reed's sales of just
$9 million in 2004 make the IPO too small
to be considered a smart play for investors.
The stock would be traded over the counter
- not by the New York Stock Exchange or
another large exchange - and could be
overlooked by investors and financial
analysts.
Reed is pursuing the IPO because he sees
a huge opportunity in the growing thirst
for healthier alternatives to sugary sodas.
His goal is to expand the brand nationally,
following the same model used successfully
by larger rivals such as Snapple and Arizona
Iced Tea.
Sales
in the natural beverage category, which
includes juices, sodas and energy drinks,
were estimated at about $16.3 billion
in 2004, a jump of 10.7 percent from the
previous year, according to Beverage Marketing
Corp., a consulting group. The traditional
soda market remained essentially flat.
"There's
a lot of innovation around products that
fall under the umbrella of 'good for you,"'
said Gary Hemphill, managing director
of Beverage Marketing. "Increasingly,
that's the direction the consumer is moving."
One
of the bigger players in the field is
Hansen Natural Corp., based in Corona,
Calif., whose most popular product is
the Monster energy drink. The company
produces natural sodas and juices, but
sales really took off since introducing
Monster in 2002. Hansen's stock price
more than tripled in 2005 to about $83.
Other
major players in the sector are Snapple,
a unit of Cadbury Schweppes PLC, and SoBe,
owned by PepsiCo Inc.
Reed
said he would use the money from his IPO
to expand sales beyond health food and
specialty stores. His products have made
their way into Southern California supermarkets,
but Reed has not been able to afford the
fees charged by large national chains
for the shelf space needed
Advertisement to significantly increase
sales.
Kathy
Smith, a principal at Renaissance Capital
in Greenwich, Conn., says potential investors
should scrutinize Reed's stock prospectus
and financial statements.
"Investors
have to look at the real stuff that is
going to matter and make sure it's the
right thing for them," she said.
The
prospectus shows sales at Reed's grew
33 percent in 2004 to $9 million and that
the company recorded a net loss each of
the past two years, although it has been
profitable in the past. Much of the loss
was due to costs associated with an aborted
stock offering several years ago and investment
in the company's new downtown Los Angeles
brewery.
The
losses narrowed in 2004 to $479,371 from
$771,997 in 2003, according to the prospectus.
The document also points out that Peter
Sharma, a member of Reed's board, is also
a selling agent for Brookstreet Securities
Corp., the lead underwriter of the IPO.
Reed
said he has subsequently asked Sharma,
a longtime friend and trusted adviser,
to leave the board after some investors
expressed concern over the arrangement.
"It's
hard for me to wrap my mind around how
people see it as a conflict," Reed
said.
Reed
could be accused of being naive when it
comes to operating a public company.
While
he wants the flexibility gained from raising
capital from the public, he chafes at
the possibility investors will dictate
how he runs his company.
"I
didn't get my company to what I call the
starting line to be pre-empted by a big
player," he said. "I'm not much
of a corporate guy."
If
all the current shares are sold, Reed
and his family would continue to own a
majority stake in the company.
Reed
said he has considered buyout offers from
larger companies and private investment
groups but isn't ready to give up control
just yet.
"I've
been crawling, and now I can walk a little
bit and am starting to trot," Reed
said. "We've not fueled up yet. We've
not had our first infusion of serious
capital to run."