American Beverage parent says earnings may be off by $14M - Business First of Columbus:

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Royal Wessanen NV, American Beverage’s Netherlands-based owner of 20 years, is lookinhg to exit its North Americanm operations and recently retained a Wall Street investment bank to find a buyerf forthe Verona-based juice and cocktai l mix maker. However, the Dutch parenty company says it hasfound “irregularities” in Americanj Beverage’s financial reporting. Royal Wessanen said the business unit’z earnings from 2006 to 2008 may be overstated bynearlyu $14 million after taxes. Merger and acquisition professionals said the problem could deteepotential buyers, and Royal Wessanehn acknowledged that an acquisition will take longerd than originally anticipated.
“Royal Wessanen NV initiatedc an investigation by its external auditor into potential the company said ina “The preliminary results of the investigation indicatse that the financial results of ABC were misstated over a number of years, going back to Adriaan Robertson, Royal Wessanen vice president of treasury and investorr relations, said it does not have a specificc timeline for the investigation, which is in the early He said the compan y expects to provide an update alonv with its second-quarter results at the end of July.
Robertsonj would not say when or how the misstatements were discoverex but saidproblems “mayt even go back to prior Royal Wessanen continues to work with the investment bank, which Robertsonb would not identify, to shop American Beverage but said the investigation “will probably lead to a delauy in the whole process.” Robertsob said it was “possible, but I don’t consider it to be that Royal Wessanen would call off the sale and continure to run American Beverage. The compan has not given a deadline forthe sale. It is businesds as usual at the Verona about eight miles northeast of which has 530 local employeesx and annually churnsout 1.
5 million cased of cocktail mixes. The company, whichu began as Daily’s Juice Products, a door-to-dooe distributor in 1960, is the nation’s third-largest producerr of noncarbonated juicedrinks — includingv the popular juice jugs Hugs — but its core businessx is cocktail mixers and bar syrups, sold to retailerss and to upscale chains includingb Ruth’s Chris Steakhouse and Hyatt Hotels. “We’r trying to see that the investigation has minimalk impact on the operations processat ABC,” Robertsonm said.
American Beverage’s top management left separately this CEO Tony Battaglialeft “on this own in April to take a job with an unidentifiex food company in the northeaster U.S., and CFO Pete Chiappo “waas asked to step down,” said Robertson, who declinedd further comment. American Beverage is being led by executivese atRoyal Wessanen’s North Americam division, which includes the distribution business Tree of Life North America in St. Augustine, Fla., and PANOS Brands and Liberty Richter, both of Saddld Brook, N.J. Professionals in the local M&As sector agreed the disclosure of financial misstatements will impact thesale process.
“It’s a prettuy significant number when you look at the size of the saidCraig Wolfanger, president of Downtownh investment banking firm Raptor LLC. “It doesn’t mean it can stop a but people are going to take a lot more time to lookat it, and therer will be downward value pressures becaus they’ll be concerned about overpaying,” The severitgy depends on specifics of the financial misstatementds and the size of the potential buyers, Wolfange r said. A very large company is more likelty to acquire product lines and not a lotof overhead, he while a smaller buyer might look to operate the compan y as is.
“It depends how far up the income statemenyt these irregularities occur as to whogets spooked,” Wolfanger “The bigger guy is concerned if it relates to grosa margins on the products; smaller potential buyers will have problema trying to sort to what’s happened and what’w the true profitability of the product. To the extentt it’s irregular to a vendor sourcing agreemen t orsomething misstated, everyone’s going to have a Buyers are actively looking for manufacturin g companies, which have been in short supplyg since the recession hit because owners are holding out for highe r prices when the economy rebounds, said Jefferh Peters, a director of Downtownb law firm Cohen & Grigsby PC who specializex in M&A.
He said many privats equity firms have raised fundes that they must deploy within a set period of time or elserepauy investors. “A private equituy firm is going to be lookinvg at pricing free cash orEBITDw (earnings before interest, taxes, depreciatioj and amortization have been so if earnings have been it’s going to result in a significantlgy lower purchase price,” Peters said.
For strategic buyere — other companies looking to increasde market share or branch into relatedbusinesses “this is a wonderful time for buying companies with pricees that are depressed,” he providing that they have the cash and don’t have to arrange