Note 3—Acquisitions

DSS Acquisition

In December 2014, we completed the acquisition by merger of DSS Group, Inc. (“DSS Group”), parent company to DS Services of America Inc. (collectively “DSS”), a leading bottled water and coffee direct-to-consumer services provider in the United States (the “DSS Acquisition”). The DSS Acquisition was consummated pursuant to an Agreement and Plan of Merger (the “DSS Merger Agreement”) dated November 6, 2014. Aggregate consideration was approximately $1.246 billion payable through a combination of incremental borrowings under the ABL facility (as defined below) of $180.0 million, the issuance of $625.0 million of our 6.75% senior notes due January 1, 2020 (“2020 Notes”), assumption of existing $350.0 million senior notes due 2021 originally issued by DSS (“DSS Notes”), the issuance of Series A Convertible First Preferred Shares (the “Convertible Preferred Shares”), having an aggregate value of approximately $116.1 million and Series B Non-Convertible First Preferred Shares (the “Non-Convertible Preferred Shares” and together with the Convertible Preferred Shares, the “Preferred Shares”), having an aggregate value of approximately $32.7 million. A portion of the aggregate consideration is being held in escrow to secure the indemnification obligations of DSS’s former security holders under the DSS Merger Agreement.

The total consideration paid by us in the DSS Acquisition is summarized below:


(in millions of U.S. dollars)
Cash paid to sellers	$	449.7
Deferred consideration		8.9
Cash paid on behalf of sellers for sellers expenses		25.3
Cash paid to retire term loan on behalf of sellers		317.3
Convertible Preferred Shares		116.1
Non-Convertible Preferred Shares		32.7

Total consideration	$	950.0

The initial estimated merger consideration of $941.1 million was adjusted by $8.9 million for differences between estimated working capital, net indebtedness and certain transaction related expenses and those amounts calculated by Cott and submitted to the former security holders of DSS for review and approval, and, if necessary, submitted to an independent auditor for a final determination. The parties continue to work toward finalization of these amounts as of the filing date of this report.

Our primary reasons for the DSS Acquisition were to accelerate Cott’s acquisition based diversification outside of CSDs and shelf stable juices, extend our beverage portfolio into new and growing markets, including home and office bottled water delivery services, office coffee services and filtration services, while creating opportunities for revenue, cost synergies and growth prospects, and broaden our distribution platform by adding a national direct-to-consumer distribution channel.

The DSS Acquisition is being accounted for as a business combination which, among other things, requires that assets acquired and liabilities assumed be measured at their acquisition date fair values. Identified intangible assets, goodwill and property, plant and equipment are recorded at their estimated fair values per preliminary valuations and may change based on the final valuation results. Estimated fair values recorded for deferred tax balances and working capital are also subject to change based on finalization of the purchase price. The results of operations of DSS have been included in our operating results beginning as of the acquisition date. We allocated the purchase price in the DSS Acquisition to tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over the aggregate fair values was recorded as goodwill. The fair value assigned to identifiable intangible assets acquired was based on estimates and assumptions made by management.

The following table summarizes the estimated allocation of the purchase price to the fair value of the assets acquired and liabilities assumed in connection with the DSS Acquisition. Included as part of these adjustments to the initial purchase price allocation is the correction of $6.2 million of certain balance sheet classification errors previously identified at January 3, 2015. The allocation of the purchase price is based on a preliminary valuation that is expected to be completed by the end of 2015.


(in millions of U.S. dollars)	As reported at January 3, 2015			Adjustments			As reported at April 4, 2015
Cash and cash equivalents	$	74.5		$	—		$	74.5
Accounts receivable		103.4			(0.8	)		102.6
Inventories		46.8			(0.4	)		46.4
Prepaid expenses and other current assets		8.8			—			8.8
Deferred income taxes		2.8			1.3			4.1
Property, plant & equipment		403.3			9.4			412.7
Goodwill		556.9			2.9			559.8
Intangible and other assets		417.2			—			417.2
Accounts payable and accrued liabilities		(110.2	)		(7.5	)		(117.7	)
Long-term debt		(406.0	)		—			(406.0	)
Deferred income taxes liabilities		(129.1	)		6.2			(122.9	)
Other long-term liabilities		(27.3	)		(2.2	)		(29.5	)

Total	$	941.1		$	8.9		$	950.0

The principal factor that resulted in recognition of goodwill was that the purchase price for the DSS Acquisition was based 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 DSS Acquisition was allocated to the DSS reporting segment, a portion of which is expected to be tax deductible.

Aimia Acquisition

In May 2014, our United Kingdom (“U.K.”) reporting segment acquired 100 percent of the share capital of Aimia Foods Holdings Limited (the “Aimia Acquisition”), which includes its operating subsidiary company, Aimia Foods Limited (together referred to as, “Aimia”). Aimia produces and distributes hot chocolate, coffee and powdered beverages primarily through food service, vending and retail channels, and produces hot and cold cereal products on a contract manufacturing basis. The aggregate purchase price for the Aimia Acquisition was £52.1 million ($87.6 million) payable in cash, which included a payment for estimated closing balance sheet working capital, £19.9 million ($33.5 million) in deferred consideration paid on September 15, 2014, and aggregate contingent consideration of up to £16.0 million ($23.7 million at exchange rates in effect on April 4, 2015), which is payable upon the achievement of certain measures related to Aimia’s performance during the twelve months ending July 1, 2016. The closing payment was funded from ABL borrowings and available cash.

The total consideration paid by us for the Aimia Acquisition is summarized below:


(in millions of U.S. dollars)
Cash paid to sellers	$	80.4
Deferred consideration		33.5
Contingent consideration¹		17.9
Working capital payment		7.2

Total consideration	$	139.0

^1.	Represents the estimated present value of the contingent consideration based on probability of achievement of performance targets recorded at fair value.

Our primary reasons for the Aimia Acquisition were to diversify Cott’s product portfolio, packaging formats and channel mix, and enhance our customer offering and growth prospects.

The Aimia Acquisition was accounted for as a business combination, which, among other things, required that assets acquired and liabilities assumed be measured at their acquisition date fair values. Identified intangible assets, goodwill and property, plant and equipment were recorded at their estimated fair values per valuations. The results of operations of Aimia have been included in our operating results beginning as of the acquisition date. We allocated the total purchase price to tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over the aggregate fair values was recorded as goodwill.

The sellers are entitled to contingent consideration of up to a maximum of £16.0 million ($23.7 million at exchange rates in effect on April 4, 2015), based on the exchange rate on the acquisition date, which will become due by us if Aimia meets certain targets relating to net income plus interest, income taxes, depreciation and amortization (“EBITDA”) for the twelve months ending July 1, 2016. We estimated the fair value of the contingent consideration based on financial projections of the acquired business and estimated probabilities of achievement of the EBITDA targets. We believe that our estimates and assumptions are reasonable, but there is significant judgment involved. Changes in the fair value of contingent consideration liabilities subsequent to the acquisition will be recorded in our Consolidated Statements of Operations. The fair value of the contingent consideration was determined to be £10.6 million ($15.7 million at exchange rates in effect on April 4, 2015) using a present value probability-weighted income approach. Key assumptions include probability-adjusted EBITDA amounts with discount rates consistent with the level of risk achievement.

The following table summarizes the allocation of the purchase price to fair value of the assets acquired and liabilities assumed in connection with the Aimia Acquisition.


(in millions of U.S. dollars)	As reported at April 4, 2015
Cash	$	9.5
Accounts receivable		11.0
Inventories		9.6
Prepaid expenses and other current assets		1.9
Property, plant & equipment		10.9
Goodwill		54.5
Intangible and other assets		86.2
Accounts payable and accrued liabilities		(27.4	)
Deferred tax liabilities		(17.2	)

Total	$	139.0

The principal factor that resulted in recognition of goodwill was that the purchase price for the Aimia Acquisition was based 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 Aimia Acquisition was allocated to the U.K. reporting segment, none of which is expected to be tax deductible.

Supplemental Pro Forma Data (unaudited)

The following unaudited financial information for the three months ended March 29, 2014 represent the combined results of our operations as if the DSS Acquisition and Aimia Acquisition had occurred on December 30, 2012. The unaudited pro forma financial information does not necessarily reflect the results of operations that would have occurred had we operated as a single entity during such period.


	For the Three Months Ended
(in millions of U.S. dollars, except share amounts)	March 29, 2014
Revenue	$	735.5
Net loss		(14.2	)
Net loss per common share, diluted	$	(0.15	)