March 9, 2010 / 12:31 PM / in 8 years

UPDATE 4-Reed's plans to buy Jones Soda for about $9.7 mln

* Jones CEO to step down

* Offer of 37 cents per Jones share, at 56 pct discount

* Jones shares down, Reed’s up (Recasts; adds comments, details, updates share movement)

By Nivedita Bhattacharjee

BANGALORE, March 9 (Reuters) - Struggling soft drink maker Jones Soda Co JSDA.O signed a letter of intent to be acquired by Reed’s Inc REED.O in a cash-and-stock deal that could possibly end its year-long search for a buyer.

The offer from Reed‘s, which makes natural sodas and other non-alcoholic drinks, values Jones at about $9.7 million, or 37 cents a share, based on Reed’s Monday close of $1.58. That is a discount of 56 percent to Jones’ Monday close.

Even at a discount, this might be a good bet for Jones, which has been reviewing strategic alternatives since February 2009, and had only managed to attract one suitor in December. [ID:nSGE5BK0IB]

“Jones is a very small but very good brand... the deal makes very good sense for both companies,” said John Sicher, the editor and publisher of industry publication Beverage Digest.

“I would expect that Reed’s sees value in the Jones brand and would continue to nurture and try to grow it.”

Smaller players have found it tough to hold their own in the cut-throat soft-drinks environment in the United States that is dominated by bigwigs like Coca Cola Co (KO.N), Pepsico Inc (PEP.N) and Dr Pepper Snapple Group Inc (DPS.N).

DEAL AT A DISCOUNT

The companies said Jones shareholders would receive 4.5 million shares of Reed’s common stock and 10 cents per Jones share in cash.

Reed’s and Jones have until April 5 to negotiate a definitive agreement on an exclusive basis.

Shares of Jones have plunged to 84 cents as of Monday’s close from a level above $20 reached in March 2007, when stock commentator Jim Cramer touted the stock on his “Mad Money” show on business cable channel CNBC.

In 2007, the company’s chief executive resigned and the Securities and Exchange Commission conducted an informal probe of company officers for insider trading, though it ultimately did not recommend enforcement action. A year later, Jones cut 38 percent of its workforce.

Seattle-based Jones, famed for its unusual flavors, including mashed-potato flavored drinks, also said its current chief executive, Joth Ricci, will be stepping down effective April 2.

“Over the past year we have taken numerous steps to reduce our expenses and reinvigorate our top line in order to return to profitability,” Rick Eiswirth, chairman of Jones, said in a statement.

“Unfortunately, the challenging economic environment combined with our current capitalization has made it extremely difficult to operate on a standalone basis.”

Jones shares were trading down 38 percent at 52 cents, while Reed’s stock was up 6 percent at $1.67 Tuesday afternoon on Nasdaq. (Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Aradhana Aravindan, Anne Pallivathuckal)

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