Primo Water: Cost Synergy Feasible in BlueTriton Merger, but No Change to Competitive Position  

We plan to raise our USD 17.10 and CAD 23.20 fair value estimates of Primo Water by a mid-single-digit percentage following news on the proposed merger between the firm and BlueTriton. This will create a new water company with USD 6.5 billion in sales in the past 12 months and USD 1.5 billion in adjusted EBITDA. We estimate that the deal values stand-alone Primo Water at 10 times enterprise value/adjusted EBITDA, slightly higher than the 9.5 times multiple implied by our intrinsic valuation before the planned increase. We think the biggest merger benefit lies in the expected USD 200 million run-rate cost savings (3% of combined sales), which looks feasible based on efficiency gains in route planning, procurement, and IT. However, given the lack of differentiation and fierce price competition in the water aisle, we remain skeptical that the postmerger company will benefit from brand intangible assets or cost advantage. Thus, our no-moat rating remains in place. Shares look overvalued even after our planned fair value estimate increase.