Acquisitions

6 Months Ended

Jun. 27, 2020

Legacy Primo Acquisition

On March 2, 2020, the Company completed the Legacy Primo Acquisition, adding North America’s leading single source provider of multi-gallon purified bottled water, self-service refill drinking water and water dispensers sold through major retailers to the Company’s catalog of home and office bottled water delivery businesses in North America and Europe. Primo is a familiar name in sustainable water solutions that will help drive the visibility of our water businesses, moving us towards a pure-play water solutions company. The Legacy Primo Acquisition broadens our capabilities and our portfolio, creating new cross-selling opportunities and vertical integration across home and office delivery, retail, filtration, refill and exchange services. Integrating Legacy Primo with our DSS business will enable us to combine the expertise and innovation of these two growing companies with complementary business models. The integration gives us the ability to expand Legacy Primo’s products and services across our 21-country footprint.

The Legacy Primo Acquisition was structured as an exchange offer to purchase all of the outstanding shares of common stock of Legacy Primo for per-share consideration of (i) $14.00 in cash, (ii) 1.0229 Cott Corporation common shares plus cash in lieu of any fractional Cott Corporation common share, or (iii) $5.04 in cash and 0.6549 Cott Corporation common shares, at the election of Legacy Primo’s stockholders, subject to the proration procedures set forth in the merger agreement. Immediately following the consummation of the exchange offer, Cott Corporation indirectly acquired the remaining Legacy Primo shares through a merger between Legacy Primo and a wholly-owned subsidiary of Cott Corporation.

The total cash and stock consideration paid by us in the Legacy Primo Acquisition is summarized below:


(in millions of U.S. dollars, except share and per share amounts)
Fair value of common shares issued to holders of Legacy Primo common stock (26,497,015 shares issued at $14.25 per share)	$	377.6
Cash to holders of Legacy Primo common stock	216.1
Cash paid to retire outstanding indebtedness on behalf of Legacy Primo	196.9
Settlement of pre-existing relationship	4.7
Fair value of replacement common share options and restricted stock units for Legacy Primo awards	2.9
Total consideration	$	798.2

The table below summarizes the originally reported estimated acquisition date fair values, measurement period adjustments recorded and the preliminary purchase price allocation of the assets acquired and the liabilities assumed:


(in millions of U.S. dollars)	Originally Reported		Measurement Period Adjustments		Acquired Value
Cash and cash equivalents	$	1.3	$	—	$	1.3
Accounts receivable	21.9		—		21.9
Inventory	12.7		—		12.7
Prepaid expenses and other current assets	4.3		0.9		5.2
Property, plant and equipment	119.0		7.1		126.1
Operating lease right-of-use-assets	4.9		(0.9)		4.0
Goodwill	337.4		(42.4)		295.0
Intangible assets	361.3		51.4		412.7
Other assets	3.9		(3.4)		0.5
Current maturities of long-term debt	(2.2)		—		(2.2)
Accounts payable and accrued liabilities	(41.6)		—		(41.6)
Current operating lease obligations	(1.8)		—		(1.8)
Long-term debt	(5.8)		0.5		(5.3)
Operating lease obligations	(3.1)		0.9		(2.2)
Deferred tax liabilities	(11.7)		(14.5)		(26.2)
Other long-term liabilities	(2.3)		0.4		(1.9)
Total	$	798.2	$	—	$	798.2

Measurement period adjustments recorded during the three months ended June 27, 2020 include adjustments to property, plant & equipment and intangible assets based on results of the preliminary valuations, adjustments to operating and financing lease right-of-use assets and obligations based on a review of acquired leases, a deferred tax adjustment related to the preliminary valuation and an adjustment to a note receivable existing at the acquisition date. The measurement period adjustments did not have a material effect on our results of operations in prior periods.

The assets and liabilities acquired in the Legacy Primo Acquisition are recorded at their estimated fair values per preliminary valuations and management estimates and are subject to change when formal valuations and other studies are finalized. Estimated fair values for deferred tax balances are preliminary and are also subject to change based on the final valuation results. In addition, consideration for potential loss contingencies are still under review.

The amount of revenues and net income related to the Legacy Primo Acquisition included in the Company’s Consolidated Statement of Operations for the period from the Legacy Primo Acquisition date through June 27, 2020 were $116.4 million and $1.4 million, respectively. The Company incurred $2.9 million and $21.7 million of acquisition-related costs associated with the Legacy Primo Acquisition, which are included in acquisition and integration expenses in the Consolidated Statements of Operations for the three and six months ended June 27, 2020.

Intangible Assets

In our determination of the fair value of intangible assets, we consider, among other factors, the best use of acquired assets, analysis of historical financial performance and estimates of future performance of the acquired business’ products. The estimated fair values of identified intangible assets are calculated considering both market participant expectations, using an income approach, as well as estimates and assumptions provided by Primo management and management of the acquired business. Assumptions include, but are not limited to, expected revenue growth, weighted-average terminal growth rates, risk adjusted discount rate and fair value royalty rate.

The estimated fair value of customer relationships represents future after-tax discounted cash flows that will be derived from sales to existing customers of the acquired business as of the date of acquisition.

The estimated fair value of trademarks and trade names represents the future projected cost savings associated with the premium and brand image obtained as a result of owning the trademark or trade name as opposed to obtaining the benefit of the trademark or trade name through a royalty or rental fee.

The following table sets forth the components of identified intangible assets associated with the Legacy Primo Acquisition and their estimated weighted average useful lives:


(in millions of U.S. dollars)	Estimated Fair Market Value		Estimated Useful Life
Customer relationships	$	236.3	26 years
Trade names	174.9		Indefinite
Software	1.5		3 years
Total	$	412.7

Goodwill

The principal factor that resulted in recognition of goodwill was the basis of the purchase price for the Legacy Primo Acquisition, in part, on cash flow projections assuming the reduction of administration costs and the integration of acquired customers and products into our operations, which is of greater value than on a standalone basis. The goodwill recognized as part of the Legacy Primo Acquisition was allocated to the North America reporting segment, a portion of which is expected to be tax deductible.

Supplemental Pro Forma Data (unaudited)

The following unaudited pro forma financial information for the three and six months ended June 27, 2020 and June 29, 2019, respectively, represent the combined results of our operations as if the Legacy Primo Acquisition had occurred on December 30, 2018.


	For the Three Months Ended						For the Six Months Ended
(in millions of U.S. dollars, except per share amounts)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Revenue	$	456.8	$	523.4	$	971.5	$	1,010.3
Net (loss) income from continuing operations	$	(131.7)	$	6.3	$	(144.7)	$	(30.4)
Net (loss) income	$	(136.0)	$	8.0	$	(118.1)	$	(25.7)
Net (loss) income per common share from continuing operations, diluted	$	(0.82)	$	0.04	$	(0.96)	$	(0.19)
Net (loss) income per common share, diluted	$	(0.85)	$	0.05	$	(0.78)	$	(0.16)