Professor Michael Lord Comments on Primo Water Corp. IPO

10.7.2010 Article, General, School News

Primo prepares IPO | by Richard Craver
reposted from Winston-Salem Journal

Shares may bring up to $115 million
Primo Water Corp. is moving forward — after nearly seven months of idling — with an initial public offering that it expects to yield up to $115 million.

The company is owned by local businessman Billy Prim. Prim is also the majority owner of the Winston-Salem Dash, which received nearly $28 million in financing from Winston-Salem to help build a $48.7 million downtown baseball stadium.

Primo said in yesterday’s Securities and Exchange Commission filing that it is offering slightly more than 8.33 million shares. The share price is expected to range between $11 and $13.

The IPO could reach slightly more than 9.58 million shares if its underwriters, which include BB&T Capital Markets, exercise options to buy up to an additional 1.25 million shares to cover overallotments. The company has applied to list its common stock on the Nasdaq Global Market under the symbol “PRMW.”

Primo is the first Winston-Salem company to attempt to go public since Hatteras Financial Corp. in April 2008.

Mark Castaneda, the chief financial officer of Primo, said that officials could not comment on when it planned to conduct the IPO because the company is in a quiet period. Under SEC rules, companies that announce plans to go public cannot promote their stock during that period.

It has been pitching the IPO primarily on its confidence that it would gain sales and market share because of existing distribution channels and on more public awareness of its biodegradable water bottle, which it introduced in April 2008.

Most of the projected $90.7 million to $104.7 million in IPO
proceeds is allocated.

In June, Primo said it would pay $60 million in cash and $45 million in stock for Culligan Stores Solutions, a unit of Culligan International Co. of Rosemont, Ill. Primo said in the filing that it would issue an additional 3.75 million shares to cover the stock commitment to Culligan.

The Culligan group generates filtered water for refill vending machines and store-use water services in 4,500 retail stores in the United States and Canada. Culligan also sells empty reusable bottles at the sites. “We will not close this offering unless we believe the Culligan Refill Acquisition will close promptly thereafter,” Primo has said.

Besides the $60 million toward the Culligan deal, other parts of the IPO proceeds would be used to pay debt, redeem a portion of its outstanding preferred stock, pay accrued and unpaid dividends on that stock and pay fees and expenses connected with these financial actions.

Analysts said Primo’s IPO does carry some risk for the company and its 75 employees. It may not meet its proceeds goal, given that most IPOs are priced between $8 and $14 a share.

“It’s still a difficult market for IPOs, unless a company has a long track record with solid revenues and profits,” said Michael Lord, an associate professor of management at Wake Forest University. “Like the markets in general, the IPO market continues to be skittish.”

Even though Primo had $46.9 million in sales in 2009, it has not had a profitable year since it was founded in 2004. It lost $14.8 million overall last year. However, Culligan had $26 million in sales last year and a profit of $4.3 million, Primo said.

One advantage to the Primo strategy is that Prim is accustomed to taking major risks with a start-up company. In 1994, Prim founded Blue Rhino Corp. as a propane-cylinder exchange business. Despite not being profitable when it went public in May 1998, Blue Rhino debuted with a share price of $13.

In April 2004, Blue Rhino was sold to Ferrellgas Partners LP for $343 million. At that time, it was the market leader with more than 29,000 retail sites in 49 states.

Tony Plath, a finance professor at UNC Charlotte, said that Primo has a good chance at selling the 8.33 million shares. However, he said that Primo is more likely to sell out the shares at $9 to $10 than the $11 to $13 range.