SodaStream (SODA) Off Highs as Analyst Says LBO 'Highly Improbable to Impossible'

Shares of SodaStream International (NASDAQ: SODA) surged as much as 26% following reports from Bloomberg that private equity firms are considering taking the company private at $40 per share. However, shares have since backed off their highs of the day after an analyst poured cold water on the idea - last trading at $32.51 (+12.5%).

Stifel Nicolaus analyst Jim Duffy notes that today's reports follows a pattern of prior speculation where undisclosed sources spoke to the press about a sale to Pepsi and Starbucks.

In addition, looking at the numbers the analyst sees today's reports as "highly improbable to impossible."

Duffy notes a $40 share price implies an equity value of approximately $831mn per share (exiting 2Q they expect net cash to be approximately $0) which represents 11.1X trailing EBITDA. Insiders own less than 15% of SODA shares suggesting additional/outside capital would be needed to fund the acquisition of the residual equity. Further, the analyst notes SODA's business model has a particularly poor track record for cash flow generation (free cash flow -$33mn in 2011, -$11.5mn in 2012, and -$53mn in 2013) given capital investments in manufacturing and CO2 cylinders and the working capital intensity of the business. Also, while CapEx will moderate in FY15, they expect EBITDA is under pressure as well.

"Accordingly, we believe use of debt to finance the transaction is imprudent, particularly given the leverage to fund the total amount of the deal would put the debt to trailing EBITDA leverage ratio at greater than 9.0X," he said.

The firm maintained a Sell rating on the stock.

For an analyst ratings summary and ratings history on SodaStream International click here. For more ratings news on SodaStream International click here.

Shares of SodaStream International closed at $28.90 yesterday.

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