Mountain Valley Spring Co. Positions to Convert Cachet Into Ready Cash Through IPO

by George Waldon  on Monday, Jan. 16, 2012 12:00 am  

Mountain Valley Spring Co. of Hot Springs has never had a problem producing clear, cold water for thirsty consumers. But the 140-year-old company has never generated a revenue stream to match the reliable output of its bubbling spring.

After more than seven years of ownership, private investors have turned to Wall Street in hopes of raising capital through an initial public stock offering to remedy that.

The company is still weeks away from finalizing the IPO, and details such as the exact size and value of the issue remain blank spaces in its preliminary prospectus.

The filing with the Securities & Exchange Commission bears a proposed maximum aggregate offering price of $23 million. Mountain Valley reported operating losses of $4.1 million for 2009 and $3 million for 2010.

"We have incurred operating losses in the past and expect to incur operating losses in the future," the company's securities filing stated.

"We have not been profitable in recent years, and we may not become profitable in the future."

Effective Jan. 1, 2011, Mountain Valley underwent a recapitalization that included converting nearly $30.3 million in subordinated debt and accrued interest into equity, a move that transformed creditors into stockholders and bolstered the company's balance sheet.

The conversion of debt to stock made MV Holdings LLC of Rogers 85 percent owner of the company.

MV Holdings is controlled by Johnelle Hunt, co-founder of J.B. Hunt Transport Services Inc. of Lowell and beneficial owner of about 17.4 percent of the truckload carrier's outstanding common stock.

The recapitalization left the company with outstanding debt of $5.65 million on a term loan and $600,000 on a revolving line of credit as of Sept. 30. JPMorgan Chase Bank is the lender in both deals.

Breck Speed, company CEO and chairman of the board, and others associated with Mountain Valley declined comment, saying the company is in a quiet period until its registration statement is finalized with the SEC.

Revisiting a Vision

A portion of the proposed stock offering would pay to expand the sales and support staff from 10 to 30 and transform the venerable company into a money-making premium Perrier peer. It's not a new vision for the company.

"Our marketing strategy was you have to make this product so premium that you don't have to compete on price only," said Brooks Rice, CEO of Mountain Valley from 1987 to 1991. "We were the only Perrier-equivalent in the United States, and we were working to maintain that position as the premium water."

Brooks helped restore the luster of Mountain Valley Water, which retains a historic cachet and cash potential its current owners are striving to unlock.

The financial statement filed with the SEC represents a company less than half the size it was nearly eight years ago, both in terms of revenue and staff.

Revenue topped $55 million after the April 2004 merger of Mountain Valley Water and Little Rock's Clear Mountain Spring Water. The combined operations employed 285 after Clear Mountain bought Mountain Valley from Sammons Enterprises Inc. of Dallas and adopted the older, better known Mountain Valley moniker.

Mountain Valley reported revenue of $24.2 million for 2010 and appeared to be on track to top that last year with sales of $19.9 million through Sept. 30. The company listed 107 full-time employees in its Dec. 2 filing with the SEC.

Behind those drops in sales and staffing were some self-paring moves. In June 2008, Mountain Valley sold the last of its company-owned distributorships to focus resources on bottling and brand building.

"Now we have over 150 distributors that are independently operated, and we no longer own any of that distribution directly ourselves," Speed said at the time.

The redirecting of corporate resources followed what was supposed to be a breakthrough deal that fell apart in September 2007. Months of negotiations to market Mountain Valley via Anheuser-Busch's nationwide wholesale distributors fizzled.

The corporate courtship marked something of a second go-around for the St. Louis beer-brewing giant. Anheuser-Busch made a run at buying Mountain Valley Water along with other bidders in 1987 but was beat out by Sammons.

In the wake of the unsuccessful Anheuser-Busch talks in 2007, Mountain Valley got into a legal dispute with Southern Wine & Spirits, which allegedly built its spring water sales from practically nothing to $1.7 million in Nevada.

Since exiting the distribution side of the business, Mountain Valley has re-evaluated its Veriplas division, which manufactures water bottles and represents 40 percent of company sales. According to SEC filings, the company intends to consolidate production in Hot Springs of its preformed and finished bottles made from Polyethylene Terephthalate (PET) resin and get shed of its leased Little Rock facility.

Funds from the proposed stock offering also would be used to upgrade bottling equipment.

 

 

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