Campaign afoot to undermine cola challenger

COTT CORPORATION, the North American soft drinks manufacturer which is threatening to upset Coca-Cola and PepsiCo by launching an own- brand cola for Sainsbury's, has become the target of a whispering campaign. Soon after Cott announced that it was entering the UK market, British newspapers received information packs which questioned the company's reputation.

Last week, it emerged that Coca-Cola was about to engage in a big marketing, lobbying, and advertising campaign in the UK, and Cott's UK representatives expect fierce competition from the two huge cola companies, which greatly underestimated Cott's ability to win market share from them in North America.

But Cott's representatives do not think that either Coca- Cola or Pepsi have been behind the whispering campaign about the company and its chairman's past. They think the campaign is being waged by a number of aggressive sellers of the company's shares in North America. The Canadian shares have come down from a high of Cdollars 49 ( pounds 24) to Cdollars 34, with short-selling a factor.

Earlier this month, an unsolicited letter arrived at the offices of the Independent on Sunday containing critical Canadian press articles about Cott and Gerald Pencer, its chairman and chief executive.

According to these articles, Mr Pencer was associated with William Obront, described by a 1973-76 Quebec Commission of Inquiry into Organised Crime as a 'kind of linchpin' among Montreal's criminals.

Mr Pencer's catering firm bought meat from Obront, and Mr Pencer was introduced by Obront to bank managers who subsequently guaranteed bank loans for him. Mr Pencer was called before the Commission in 1974 and 1976 to testify about his links with Obront.

The letter arrived at the offices of the Independent on Sunday around the time it emerged that Cott's UK representatives were in talks with Sainsbury over introducing a Sainsbury sub-brand that would taste similar to Coke and Pepsi and would have a brand name of its own - but would slightly undercut the others in price.

A Cott spokesman declined last week to respond to individual allegations. But he did say: 'Gerry has never been indicted or convicted of any criminal activity.'

Over the past three years, Cott has captured about 20 per cent of the Canadian cola market through deals with retailers that sell its brands either instead of Pepsi or Coke, or alongside them.

In some parts of the US, Cott is said to have captured as much as 40 per cent of the cola market.

During the same period its share price has increased massively in spite of recent falls.

Mr Pencer is described as a workaholic and a marketing expert. He is a close friend of Dave Nichol, a brand guru who worked formerly for Loblaw, one of Canada's largest chain stores.

Earlier this year, the group quietly bought a 51 per cent shareholding in the canning line of Benjamin Shaw, the Yorkshire soft drinks manufacturer.

It is through this partnership that Cott is now negotiating with Sainsbury and other retailers. The spokesman said an agreement has been signed with Sainsbury and that a product will be launched in the 'very near future'.

UK analysts expect the supermarket chains here to use their discussions with Cott to put pressure on Coca Cola and Pepsi to cut their prices, and a Cott product is expected to be launched against them soon.

Some sections of Canada's financial community have criticised the company's accounting methods and raised questions about the number of insiders who have recently sold its shares.

North American analysts have divided opinions about Cott and Mr Pencer. Many admire his energy and enthusiasm and have grateful clients who have seen the value of Cott's shares rise dramatically.

Others are more circumspect. Andrew Guy, an analyst at Equity Research Associates in Toronto, said: 'Some of Cott's largest clients in North America are cutting back.'

He said the decline in Cott's home market might explain why the company was looking to Europe for growth.