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Reeds Inc and Jones Soda possible merger, is there an investment play here?

March 09, 2010 – Comments (3) | RELATED TICKERS: REED , JSDA

LOS ANGELES, CA and SEATTLE, WA--(Marketwire - March 9, 2010) -  Reed's, Inc. (NASDAQ: REED), maker of top-selling sodas in natural food stores nationwide, and Jones Soda, Inc. (NASDAQ: JSDA), a leader in the premium soda category and known for its unique branding and innovative marketing, announced today that the two companies have entered into a Letter of Intent (LOI) regarding a merger, with Reed's as the surviving company. The combination would unite a number of leading premium soda brands, such as Reed's Ginger Brew, Virgil's, and Jones Soda. The proposed merger would also provide the two companies with the opportunity to realize the potential benefits of increased size and scale, as well as cost efficiencies in several aspects of the combined business, including administration, operations, and customer interface. The strength of the Reed's portfolio in the direct selling channel combined with Jones Soda's strong national distributor structure allows for future growth opportunities for each company's brands across these channels.

The non-binding provisions of the LOI contemplate a merger transaction in which Reed's would acquire Jones Soda for a combination of cash and Reed's common stock. The shareholders of Jones Soda would receive an aggregate of 4.5 million shares of Reed's common stock (or approximately 0.17 of a share of Reed's common stock per share of Jones Soda common stock based on current Jones Soda shares outstanding) and cash of $0.10 per share of Jones Soda common stock (or an aggregate of approximately $2.56 million based on current shares outstanding). There is no financing contingency as Reed's would use its best efforts to secure the cash portion of the consideration, and if it is unable to secure all or part of this cash, any deficit would instead be paid in additional shares of Reed's common stock, with the aggregate number of shares equal to the amount of the cash deficit divided by $1.70. 

Mr. Chris Reed, Founder, Chairman and CEO of Reed's, stated, "We have watched Jones for years and have been impressed with its innovative marketing programs, strong brand recognition, and loyal customer following. I am confident that our portfolio of brands will benefit from Jones Soda's marketing savvy, as well as its organization's deep mainstream distribution relationships. At the same time, we believe our strong infrastructure and operational capabilities will help drive important efficiencies through Jones Soda's supply chain. With minimal customer and demographic overlap between our combined brands, we believe this transaction also provides us with compelling merchandising and growth opportunities in the years ahead."

Jones Soda retained North Point Advisors in February 2009 to assist in evaluating the company's strategic alternatives. Since that time, Jones has reviewed a broad range of strategic alternatives to enhance shareholder value.

Rick Eiswirth, Chairman of the Board of Jones Soda Co., stated, "Over the past year we have taken numerous steps to reduce our expenses and reinvigorate our top line in order to return to profitability. Unfortunately, the challenging economic environment combined with our current capitalization has made it extremely difficult to operate on a standalone basis. After evaluating a range of strategies aimed at improving our outlook, our Board of Directors determined that the proposed merger with Reed's offers our shareholders the most compelling long-term benefits of the available alternatives. We believe the combination of Jones and Reed's will create a substantially larger beverage business with a more powerful operating platform and a brighter future. We are especially pleased that the Jones shareholders will be able to participate in the potential upside of the combined business, as a meaningful portion of the consideration is in the form of Reed's stock."

Jones Soda also announced that Joth Ricci will be stepping down as Chief Executive Officer effective April 2, 2010 in order to pursue other business opportunities. Joth Ricci commented, "I have truly enjoyed my time at Jones Soda and I'm pleased with the work our team has done to improve many aspects of our business. Unfortunately, due to the current market conditions, it has taken longer than anticipated to produce the necessary top line results to effectively return to profitability and stem our cash burn. However, I remain confident in the strength of the Jones Soda brand and believe the proposed merger with Reed's provides Jones Soda an improved platform from which to capitalize on its future prospects and is in the best interests of its shareholders."

Under the binding provisions of the LOI, Reed's and Jones Soda have until April 5, 2010 to negotiate a definitive agreement on an exclusive basis. If Jones Soda receives an unsolicited acquisition, financing or other strategic transaction proposal that the Board of Directors of Jones Soda determines is superior to the proposed merger transaction with Reed's, then Jones Soda may terminate the LOI and reimburse Reed's for its third party out-of-pocket expenses (not to exceed $75,000).

Since the transaction terms of the LOI are non-binding, they are subject to the negotiation, execution and delivery of a definitive agreement approved by the respective Boards of Directors of each company. Accordingly, the proposed terms of the transaction are subject to change, and there can be no assurance that Reed's and Jones Soda will enter into a definitive agreement on the terms outlined above, if at all, or that any transaction between the parties will ultimately be consummated. The companies do not intend to disclose developments with respect to negotiation of the definitive agreement until their respective Boards of Directors deem it appropriate.

The transaction would also be subject to approval of the shareholders of both Jones Soda and Reed's. 

About Reed's, Inc.

Reed's, Inc. makes the top-selling sodas sold in natural food markets nationwide, and is currently selling in more than 10,500 supermarkets in natural foods and mainstream. Its six award-winning non-alcoholic Ginger Brews are unique in the beverage industry, being brewed, not manufactured and using fresh ginger, spices and fruits in a brewing process that predates commercial soft drinks. In addition, the Company owns the top-selling root beer line in natural foods, the Virgil's Root Beer product line, and the top-selling cola line in natural foods, the China Cola product line. Other product lines include Reed's Ginger Candies and Reed's Ginger Ice Creams.

Reed's products are sold through specialty gourmet and natural food stores, mainstream supermarket chains, retail stores and restaurants nationwide, and in Canada.

For more information about Reed's, please visit the company's website at:

http://www.reedsgingerbrew.com or call 800-99-REEDS.
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Reed's Delicious bookmarks at: http://www.delicious.com/reedsinc
Reed's Facebook Fan Page at: http://www.facebook.com/pages/Reeds-Ginger-Brew-and-Virgils-Natural-Sodas/57143529039?ref=nf

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SAFE HARBOR STATEMENT

Some portions of this press release, particularly those describing Reed's goals and strategies, contain ''forward-looking statements.'' These forward-looking statements can generally be identified as such because the context of the statement will include words, such as ''expects,'' ''should,'' ''believes,'' ''anticipates'' or words of similar import. Similarly, statements that describe future plans, objectives or goals are also forward-looking statements. While Reed's is working to achieve those goals and strategies, actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. These risks and uncertainties include difficulty in marketing its products and services, maintaining and protecting brand recognition, the need for significant capital, dependence on third party distributors, dependence on third party brewers, increasing costs of fuel and freight, protection of intellectual property, competition and other factors, any of which could have an adverse effect on the business plans of Reed's, its reputation in the industry or its expected financial return from operations and results of operations. In light of significant risks and uncertainties inherent in forward-looking statements included herein, the inclusion of such statements should not be regarded as a representation by Reed's that they will achieve such forward-looking statements. For further details and a discussion of these and other risks and uncertainties, please see our most recent reports on Form 10-KSB and Form 10-Q, as filed with the Securities and Exchange Commission, as they may be amended from time to time. Reed's undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

Source: Reed's, Inc.

Contact

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Andrew W. Haag
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reeds@irthcommunications.com
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So, that's the news. Now my question is, is there a decent to good investment play here? I know virtually nothing about the soda pop industry, all I know is that from a guy who suffers from chronic gastro-intestinal problems, Reeds makes one HELL of a ginger brew. I mean their ginger brews are awesome, and I've also tried their Virgil's line of premium sodas, which are just as good as the Reeds brand of ginger brews. Tasty, tasty stuff...

Does anyone have any thoughts in this as a possible investment play? Good idea,bad idea, indifferent, unknown? Reeds popped up 13.29% today, up to $1.71 per share, so for today at least it must have seemed like a pretty good thing, and apparently Reeds is acquiring Jones at a deep discount, just under $10M, so that seems like a pretty good thing too. 

I'd be curious to hear if anyone has any thoughts on this so far as investment opportunities go. Thanks a lot, fellow Fools!