American Beverage parent says earnings may be off by $14M - Birmingham Business Journal:

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Royal Wessanen NV, American Beverage’s Netherlands-basex owner of 20 years, is lookingb to exit its North American operations and recentlyy retained a Wall Street investmeny bank to find a buyer forthe Verona-basedd juice and cocktail mix maker. However, the Dutch parengt company says it has found inAmerican Beverage’s financial reporting. Royal Wessanen said the businessa unit’s earnings from 2006 to 2008 may be overstated bynearly $14 million after taxes. Mergeer and acquisition professionals said the problem could detepotential buyers, and Royal Wessanen acknowledged that an acquisition will take longer than originally anticipated.
“Royal Wessane n NV initiated an investigation by its external auditor intopotentialp irregularities,” the company said in a statement. “The preliminary results of the investigation indicater that the financial results of ABC were misstatecd over a numberof years, gointg back to 2006.” Adriaan Robertson, Royal Wessanenn vice president of treasuryh and investor relations, said it does not have a specifix timeline for the investigation, which is in the early He said the company expects to provide an update alony with its second-quarter results at the end of Robertson would not say when or how the misstatementsz were discovered but said problems “mah even go back to prior periods.
” Royal Wessanen continued to work with the investment bank, whicgh Robertson would not identify, to shop Americanh Beverage but said the investigation “will probablyy lead to a delay in the wholew process.” Robertson said it was “possible, but I don’t considerf it to be likely,” that Royal Wessane n would call off the sale and continure to run American Beverage. The company has not givehn a deadline forthe sale. It is businessz as usual at theVerona plant, abou eight miles northeast of Pittsburgh, which has 530 loca l employees and annually churns out 1.5 million cases of cocktail mixes.
The company, which begab as Daily’s Juice a door-to-door distributor in 1960, is the nation’a third-largest producer of noncarbonated juice drinks including the popular juicwe jugsHugs — but its core business is cocktail mixers and bar sold to retailers and to upscald chains including Ruth’s Chris Steakhousw and Hyatt Hotels. “We’re trying to see that the investigation has minimapl impact on the operations process at Robertson said. American Beverage’s top management left separatelythis spring. CEO Tony Battagli a left “on this own accord” in Aprill to take a job with an unidentified food compangy in thenortheastern U.S.
, and CFO Pete Chiappo “was askec to step down,” said Robertson, who declined further American Beverage is being led by executives at Royal Wessanen’ws North American division, which includes the distributiobn business Tree of Life North America in St. Augustine, and PANOS Brands and Liberty Richter, both of Saddlee Brook, N.J. Professionals in the local M&A sectoe agreed the disclosure of financiall misstatements will impact thesale process. “It’se a pretty significant numbed when you look at the size of the saidCraig Wolfanger, president of Downtowmn investment banking firm Raptoer LLC.
“It doesn’t mean it can stop a but people are going to take a lot more time to lookat it, and thered will be downward value pressure s because they’ll be concerned about overpaying,” The severityh depends on specifics of the financial misstatements and the size of the potentiall buyers, Wolfanger said. A very large company is more likelh to acquire product lines and not a lot of he said, while a smaller buye r might look to operate the company as is. “I t depends how far up the incomde statement these irregularities occur as to who gets Wolfanger said.
“The bigger guy is concerned if it relatew to gross margins on the smaller potential buyers will have problems trying to sortto what’ s happened and what’s the true profitabilit of the product. To the extent it’s irregular to a vendo sourcing agreement orsomething misstated, everyone’s going to have a Buyers are actively looking for manufacturing which have been in shory supply since the recession hit because owners are holdiny out for higher prices when the economy rebounds, said Jefferuy Peters, a director of Downtown law firm Cohen & Grigsbyg PC who specializes in M&A.
He said many privatw equity firms have raised funds that they must deploh within a set period of time or elserepauy investors. “A private equity firm is going to be lookingg at pricing free cash orEBITDA (earnings before interest, taxes, depreciation and amortization have been subtracted), so if earnings have been it’s going to result in a significantly lowe r purchase price,” Peters said. For strategic buyers other companies looking to increase marketr share or branch into relaterdbusinesses — “this is a wonderfulo time for buying companies with prices that are he said, providing that they have the cash and don’t have to arrange financing.