SoBe producer South Beach Beverage Co agrees to sell 70% stake to Boston-based J.W. Childs Associates investment/buyout firm (BD 5/28/99). Several financial buyers and consumer product companies considered SoBe acquisition, say executives, but "at the end," said one, "it got down to Childs and Campbell (Soup Company)." Enterprise value of company said to be about $260 mil with Childs investment and rollover of owners' interest. SoBe and Childs disclose no deal details. Value is close to $300 mil Triarc paid Quaker Oats for Snapple in 1997 deal which included Snapple's NYC and southern California distributors. Sources say Childs-SoBe letter of intent signed April 25. Due diligence begins soon with closing anticipated late June; SoBe faces inquiry from FDA alleging certain products "misbranded" (see below); also pending lawsuit from Arizona (BD 4/14/00). If deal completes, SoBe CEO John Bello is expected to continue running company. Management of company would own all or most of 30% not owned by Childs, says source.

Perspective. Several executives speculate Childs' purchase of SoBe is significant, as it represents entry into industry of new player "with deep pockets" and "beverage experience" with possible interest in "buying other companies" and "assembling a bigger beverage company." Competition. SoBe faces stiff competition from Snapple, Arizona plus Coke/Pepsi non-carb entries. Industry executives suggest upcoming new Dole juice line from Pepsi may include fortified beverages. Plus in recent weeks, Coke executives talk about importance of non-carbs.

Views. Triarc Beverage CEO Mike Weinstein: "Between Snapple Elements' growing success and the impending Mistic Zotics' launch, I can understand why they'd want to sell the business now." Bottlers. SoBe distributors are positive on product and prospects. CSD bottlers with SoBe: 1) "Brand has been phenomenal. Bello is a very creative guy." 2) "(John) Childs has been smart in the past. He must feel the brand's potential has not been reached, and I think he's right." 3) "It's fun to have a brand where the customers call us and ask for it. It helps with the rest of our portfolio." Caution. But others express surprise, even skepticism. Industry executive: "SoBe is still a phenomenon, it's not yet a brand." Other executive: "Childs is smart, but SoBe isn't Snapple. If he thinks he can do it again, he may be in for a rude awakening." (Childs played role in 1992 Snapple deals; see below). Wall Street analyst: "There's room for some niche players, but with Coke and Pepsi pushing into non-carbs, it will get more difficult (for smaller companies)."

SoBe. SoBe sells line of hot-fill herbal/vitamin enhanced juice/tea beverages; competes with Snapple, Arizona, etc. Top table on this page shows SoBe's place in 1999 BD/Maxwell all-channel non-carb universe. SoBe's 1999 volume was 29.4 mil 192-oz cases, up from 13 mil cases in 1998; 1 mil cases in 1997. 1999 revenues were $170 mil. Company has been growing rapidly both from consumer demand and expanding distribution. SoBe's shares in US markets vary widely, from 1.0 in Dallas/Ft. Worth to 33.6 in Seattle/Tacoma; lower table covers single-serve "new age" beverages in grocery channel for January. Background. South Beach was founded in 1995 by John Bello and Tom Schwalm. Originally sold line of "South Beach" beverages without great success. Launched SoBe line in 1997. National Beverage said to have eyed acquisition in 1997 (BD 12/12/97). Distribution. SoBe's distribution consists of 3rd-tier bottlers, several cola bottlers plus beer and new age distributors. Advertising. SoBe begins new youth-oriented radio ad campaign May 6; tagline "SoBe Yourself."

Childs-Snapple. J.W. Childs buyout firm headed by John Childs, formerly senior managing director Thomas H. Lee Co buyout firm (Lee). He played major role in Lee's 1992 purchase of majority stake in Snapple and subsequent IPO. Snapple was sold to Quaker Oats in 1994 for $1.7 bil. Lee reaped nearly $900 mil profit, according to Wall Street Journal. Childs also recently agrees to buy Nutrasweet ingredient business from Monsanto for $440 mil; deal pends. Other Childs investments include: Chevy's Fresh Mex restaurants, Quality Stores and American Safety Razor.

Arizona lawsuit and FDA 'warning.' SoBe faces several legal thorns. Trial said nearing on pending lawsuit from Arizona re alleged misappropriation of trade secrets and claimed copying of trade dress (BD 4/14/00). In addition on February 1, 2000 FDA sent SoBe letter alleging some SoBe labels "cause (certain of company's products) to be in violation of" Federal Food, Drug and Cosmetic Act. FDA claims some SoBe products are "misbranded." SoBe executive says: "We are cooperating with the FDA and have responded to its warning letter by revising our product labels to comply with the FDA's requested changes." SoBe also recently encountered problem in California when state officials embargoed product due to health claims on labels (BD 2/18/00).