Jones Soda reaches tentative deal to be acquired by Reed's

After years of struggling to turn a profit, Seattle-based Jones Soda has signed a "letter of intent" that could lead to its acquisition by a Los Angeles natural-soda-pop company called Reed's for about $10.1 million in stock and cash, the companies said in a release Tuesday.

That's more than the $7.9 million "indication of interest" Jones received from Big Red Holdings of Texas in December, but well below Jones' total market value, which was about $15 million even after its shares dropped 31 percent Tuesday.

Jones CEO Joth Ricci told the board on Monday that he will resign effective April 2.

"Unfortunately, due to the current market conditions, it has taken longer than anticipated to produce the necessary top-line results to effectively return to profitability and stem our cash burn," Ricci said in a release. He said the proposed merger with Reed's "provides Jones Soda an improved platform from which to capitalize on its future prospects and is in the best interests of its shareholders."

Once a niche brand for skateboarders and other hip soft-drink fans, Jones stumbled in 2007 when it attempted a national rollout of its beverages in cans. It hired dozens of people in early 2008 to bolster that marketing push, but "in the end, the costs were too high to build the business," Chief Financial Officer Michael O'Brien said last summer. "It would have required even more money."

Jones Soda has had an extraordinarily difficult past few months.

The company issued the kind of statement last summer that used to be the purview of dot-com companies going down. It told investors it had "substantial doubt about our ability to continue as a going concern."

Jones had enough cash, $7.1 million, to continue operating without additional funding if it could meet its sales goals. A month later, it had $6.1 million in cash.

By that time, it had been working for months with North Point Advisors to help evaluate its "strategic alternatives" to improve shareholder value.

Key Bank had terminated its $15 million line of credit, and the soft-drink marketer said it did not think it could make more meaningful cost cuts.

Still, Jones continued to cut and by December had 40 employees, about a third of the number that had worked there 18 months earlier.

It posted a third-quarter loss of $1.5 million, a 72 percent improvement from a year earlier despite an 18 percent drop in revenue.

On March 1, Alaska Airlines and Horizon Air dropped the brand in favor of Coca-Cola.

The deal with Reed's would exchange each Jones share for 10 cents plus 0.17 share of Reed's common stock. At Reed's current stock price of $1.67, the whole package would equal about 38 cents for each Jones share, or $10.1 million altogether.

Jones shares have traded between 40 cents and $1.53 a share over the past year. They closed down 26 cents, or 31 percent, at 58 cents Tuesday.

Reed's and Jones have until April 5 to negotiate a definitive agreement. If Jones receives a better offer or more funding, it must pay Reed's up to $75,000 to terminate the "letter of intent." Shareholders of both companies would have to approve any merger.

Reed's sells Ginger Brew, Virgil's Root Beer and China Cola in natural-food markets nationwide.

Founder and CEO Chris Reed said in a release that his company is impressed with Jones' innovative marketing programs, strong brands and loyal customers. There is little overlap between the companies's customers and geography.

"We believe our strong infrastructure and operational capabilities will help drive important efficiencies through Jones Soda's supply chain," he said.

Melissa Allison: 206-464-3312 or mallison@seattletimes