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


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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."