USA: Vermont Pure Merges with Crystal Rock Water Company
Bottled water is the fastest growing category of the beverage industry, and is currently ranked third, behind beer (ranked second) and soft drinks (ranked first), according to the Beverage Marketing Corporation (BMC) of New York. BMC projects the category to have an annual growth rate of 7.6% in the year 2000.
With projected combined revenues of $61 million for 2000, Vermont Pure Holdings, Ltd. (AMEX - VPS), the holding company for the Vermont Pure/Crystal Rock brands, will be the eighth largest bottled water company in the U.S., the second largest bottled water company in New England, and the fourth largest home and office delivery business in the United States.
Strategic Merger Creates Stronger Competitor
The merger of Vermont Pure and Crystal Rock is expected to accelerate Vermont Pure's penetration of the lucrative home and office market in the Northeast, the nation's fourth largest bottled water market, according to Vermont Pure Chairman and CEO Timothy G. Fallon, who will retain his title in the merged company. Additionally, the merger creates broader distribution channels for Vermont Pure, the merged company's premium brand, to supermarkets, convenience stores and other consumer outlets.
"The combined strengths of Vermont Pure and Crystal Rock position us to take advantage of the anticipated continued boom in the bottled water industry," says Fallon. "In the next decade, we expect U.S. bottled water consumption to go the way of Europe, where sales of bottled water lead all beverage categories."
Bottled Water Industry Trends
According to the Beverage Marketing Corporation of New York (BMC), bottled water has become a "mainstream" beverage in the U.S. and continues as a leading alternative to tap water. BMC statistics show:
Since 1991, bottled water per capita consumption grew 75% from 8.8 gallons to 15.5 gallons or almost 7 gallons per capita.
For the past five years, bottled water, at 5.5 gallons per capita, had the highest growth rate among beverage categories. By comparison, soft drinks, the number 1 beverage category, experienced a 4.7 gallons per capita increase, while sales of coffee and beer were flat.
And, according to a survey conducted by International Bottled Water Association (IBWA) earlier this year, Americans have become more conscious of the health benefits and convenience of drinking bottled water.
The primary sources of the natural spring water used in the Vermont Pure brands, Vermont Pure Natural Spring Water and Hidden Springs, are springs located on the company's properties in Randolph and Timmouth, Vermont. According to Fallon, the exceptionally long percolation period in the upper elevations of Vermont where the springs are located assure the highest level of purity. "Vermont Pure naturally bubbles to the surface from deep within the Green Mountains of Vermont, after being filtered naturally for up to twenty years through the geologic strata of rocks," says Fallon.
The spring water arrives at the surface at a constant temperature of 48 degrees F. with a perfect pH of 7.0 -- the same as the human body -- and a lightly mineralized taste. "Vermont Pure is refreshingly light and sweet," says Fallon. "It is one of Mother Nature's finest products."
Vermont Pure produces retail sized bottles of natural spring water as well as five and six-gallon containers for distribution through its home and office delivery service in New England, New York and New Jersey, as well is in Mid-Atlantic and Mid-Western states. Water coolers, coffee brewers, coffee and related products are also distributed on the routes. Vermont Pure has 179 full-time and 12 part-time employees.
Crystal Rock, the oldest bottled water company in Connecticut, was founded in Stamford, CT in 1914 by Henry Baker, Sr. who delivered water in half-gallon glass bottles by horse-drawn carriage to the town's largely European immigrant population. Upon his death, his wife, Gladys, and son, Henry, Jr. took over the business, with Henry assuming the role of president in 1965. Under Henry's leadership, the company constructed a bottling plant in Stamford and implemented a strategy to expand sales to the office coffee and refreshment service market. The strategy paid off: Today, Crystal Rock is the largest provider of total office refreshment services in Connecticut, serving most of the Fortune 500 companies based in Fairfield County, and has won numerous industry awards for excellent service.
In the mid-1970's Henry, Jr.'s sons Peter and Jack Baker joined the company and, with their father, continued Crystal Rock's expansion, constructing a company headquarters and new bottling facility in 1988 in Watertown, CT. Jack and Peter Baker were appointed Co-presidents of the growing Crystal Rock enterprise in 1993, with Henry Baker assuming the title of Chairman of the Board.
The 72,000 square-foot Crystal Rock facility distills its water bringing it to pure H2O, then adds pharmaceutical grade minerals back in for flavor and body. The Crystal Rock brand is packaged in various bottle sizes ranging from .5 liter to 5 gallons.
"We're bringing the best parts of both companies together, creating a bigger, better bottled water company," says Peter Baker, who will be President of Vermont Pure Holdings, Ltd. "The synergies of the two companies will propel us in the years ahead as we expand our market penetration in the Northeast."
Crystal Rock invented and holds the patent for many of the devices and tools used in the bottled water industry today. For example, Jack Baker, invented the "No-Spill, Water-Safe System" which features a spill-proof top for water cooler use and is now used by many other home and office bottled water companies.
"Growing up in the water business I've always sought ways to make our products more user-friendly," says Jack Baker, who will serve as Executive Vice President of Vermont Pure Holdings, Ltd.
Crystal Rock has 138 full-time and 14 part-time employees.
Financial Terms of the Merger
The consideration paid to the Baker family was $64.2 million, consisting of $10.5 million in cash, stock of Vermont Pure valued at $31.1 million, and 12% subordinated notes due 2007 of Vermont Pure in the original principal amount of $22.6 million. The stock price of Vermont Pure was $3.15 for the purposes of the merger. As a result, the Baker family received 9,873,015 shares.
Government and Industry Standards and Regulations
Bottled water is a food product that is fully regulated by the U.S. Food and Drug Administration (FDA) and is subject to comprehensive production, safety and quality regulations.
As members of the International Bottled Water Association (IBWA), Vermont Pure and Crystal Rock must meet standards that are, in many cases, stricter than the FDA's standards. IBWA's quality assurance program, the "Model Code," is a strict set of standards for the safe processing and sale of bottled water. IBWA bottlers are subject to unannounced annual inspections administered by the National Sanitation Foundation (NSF), an internationally recognized independent organization.
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