Primo Brands Corporation earlier this month consummated the merger of Primo Water Corporation and an affiliate of BlueTriton Brands, Inc., the bottler of Arrowhead Spring Water and more than a half dozen other drinking water products, creating what has been dubbed Primo Brands.
“I am honored to lead our combined company and our team of world-class associates,” said Robbert Rietbroek, the chief executive officer of Primo Brands. “Together, we are forming a differentiated leader in branded beverages. With a highly competitive portfolio of brands, a variety of formats and offerings across price points, and a vertically integrated, coast-to-coast manufacturing and distribution network across North America, we believe Primo Brands is strategically positioned to accelerate growth, deliver superior products and services for our customers and consumers, and be a best-in-class U.S. beverage company.”
The buyout of BlueTriton Brands by Primo Brands, like BlueTriton Brands buyout of Nestlé Waters of North America, will likely have an impact locally in San Bernardino County that Rietbroek and Primo Brands might not have a full appreciation of at this stage. Despite Rietbroek’s confident pronouncement, the Arrowhead Spring Water component of the bottled water portfolio Primo has just acquired might not have the degree of profitability it traditionally has had.
Legal and governmental procedural issues cloud the continued existence of the Arrowhead Spring Water Brand, or at least its traditional bottling operation.
Arrowhead Spring Water was originally drafted from a spring proximate to the Arrowhead Springs Hotel located in the foothills of the San Bernardino Mountains at an elevation below 2,000 feet near San Bernardino under multiple brand names, including Arrowhead Water, Puritas Water and Liquid Steam, since 2014. In 1930, the owner of the Arrowhead Springs Hotel, Charles Anthony, working in conjunction with his attorney, Byron Waters, in an ultimately successful effort to sell his water bottling assets for $100,000 to the California Consolidated Waters Company, made an unsubstantiated claim in the documents relating to the sale that the hotel had water rights to water located above the 5,000 foot elevation in Strawberry Canyon further up in the San Bernardino Mountains. Strawberry Canyon is contained within the San Bernardino National Forest – federal land – upon which no individual who or entity which did not establish water rights prior to the establishment of the 677,982 acre forest in 1893 can legally assert water rights. Anthony, prior to the sale being consummated, constructed a single water siphoning unit involving taking water from a single “bedrock crevice” spring within Strawberry Canyon next to Strawberry Creek. After the California Consolidated Waters Company purchased Anthony’s water assets, it continued to draft water from Strawberry Canyon. The California Consolidated Water Company and its corporate successors, including Arrowhead Water Corporation, Arrowhead Springs Corporation, Arrowhead® Mountain Spring Water Company, Arrowhead-Puritas, Rheem, Coca-Cola Bottling Company of Los Angeles and Beatrice Foods and the BCI-Arrowhead Drinking Water Company, augmented the single bedrock crevice spring water drafting device with six more such contrivances, known as adits – horizontal borings – at the upper end of the canyon to an altitude of 5,600 feet along Strawberry Creek and lower down in the canyon another three along the creek at an approximate elevation of 5,200 feet. Those companies used these horizontal boreholes to tap spring water aquifers in the mountainside, thereupon transporting the forest spring water through a pipeline down the mountain, giving twenty percent to half of the water thus obtained to the Arrowhead Springs Hotel and then bottling and selling the rest, marketing it under various names, including Arrowhead, Puritas, Arrowhead and Puritas, Arrowhead Puritas, Arrowhead® Spring Water and Arrowhead® Mountain Spring Water among them.
While the Arrowhead Puritas Water Bottling operation was yet under BCI’s control in the mid-1980s, Arrowhead Puritas’s U.S. Forest Service-issued water drafting permit in Strawberry Canyon expired, and the BCI-Arrowhead® Drinking Water Company applied to extend the permit. In 1987, while that application was yet being processed, Perrier purchased the BCI-Arrowhead® Drinking Water Company.
The then-pending water extraction permit renewal required a U.S. Forest Service review of the water drafting arrangement and its environmental/ecological impact, which the U.S. Forest Service then did not have the immediately available resources to carry out. In a gesture of compromise, Perrier was allowed, pending the eventual Forest Service review, to continue to operate in Strawberry Canyon by simply continuing to pay the $524-per year fee to perpetuate the water extraction under the terms of the expired permit. In 1992, Nestlé acquired the Arrowhead brand from Perrier. Nestlé continued to pay the $524 annual fee without renewing the Strawberry Canyon operation permit, which at that time existed under the name of the “Arrowhead Mountain Spring Water Co,” one that was never listed legally in corporate filings, but which operated under Nestlé and then what became Nestlé Waters of North America, Inc.
A statewide drought lasting more than five years manifested in 2011. Environmental groups began gearing up to file a lawsuit claiming the U.S. Forest Service had violated protocols and harmed the ecology of the mountain by allowing Nestlé Waters of North America to continue its operations in Strawberry Canyon for 28 years after its permit expired. Belatedly, the Forest Service initiated the long forestalled environmental review, including consideration of public input and an environmental study to determine the possible impacts of the water diversions. Upon the California Water Resources Control Board becoming involved, Nestlé made the claim that it was entitled to the forest water it was drafting based upon a right to water that had been passed along to it by its chain of corporate predecessors stretching back to water use on the mountain prior to the formation of the San Bernardino National Forest.
Ultimately, however, an examination of the water use history demonstrated that the succession of Arrowhead branded waters originated at the Arrowhead Springs in Coldwater Canyon at an elevation of 1,867 feet and that Nestlé had no legitimate claim to water rights in Strawberry Canyon.
In 2017, the California Water Resources Control Boar, based upon surveys of pump meters and other available data, found that Nestlé had been drafting 192 acre-feet (62.56 million gallons) of water from Strawberry Canyon on average per year over the previous decade. This was, the California Water Resources Control Board said, far in excess of the 26 acre-feet of water (8.47 million gallons) per year that was the historic use threshold and which would have been a prudent limit on the water to be taken. Thus, the California Water Resources Control Board, in a report released on December 21, 2017, officially declared that Nestlé should be limited to no more than slightly over 13.5 percent of the 192 acre-feet it had been diverting, issuing an order that the company help itself to no more than 26 acre-feet of water from Strawberry Canyon per year.
Nestlé defied that order, however, prompting the California Water Resources Control Board to compose a draft cease-and-desist order to stop Nestlé’s drafting of water in Strawberry Canyon.
Sensing that its practically free source of water that provided the basis for its nearly $30 million in sales of Arrowhead Spring was on the verge of figuratively evaporating, Nestlé began to look into unloading its Arrowhead Spring Water division. Among those it entered into discussions with was It Metropoulos & Company, consisting of Greek American billionaire Dean Metropolous and his two sons, Daren and Evan. They proved to be interested in not just Arrowhead but Nestlé’s entire American and Canadian drinking water portfolio. Ultimately, after obtaining further financing from One Rock Capital, the Metropolouses, forming a new entity named BlueTriton Brands, on April 7, 2021 finalized the acquisition of Nestlé’s North American drinking water holdings, with the exception of its Perrier®, S.Pellegrino® and Acqua Panna® marketing/distribution rights. In one fell swoop, Nestlé unloaded Arrowhead® Brand Mountain Spring Water, Poland Spring® Brand 100% Natural Spring Water, Deer Park® Brand 100% Natural Spring Water, Ozarka® Brand 100% Natural Spring Water, Ice Mountain® Brand 100% Natural Spring Water, Zephyrhills® Brand 100% Natural Spring Water, Pure Life® and Splash. The Metropolouses and One Rock were so caught up in the enormity of the deal that neither made adequate exploration of the circumstances with regard to Arrowhead.
The timing of the sale could not have been better for Nestlé, nor could it have been worse for One Rock and Metropoulos, at least insofar as the Arrowhead Spring Water division was concerned. Just days after the BlueTriton takeover, the California State Water Resources Control Board, responding to citizen complaints, issued the draft cease and desist order against Nestlé on April 23, 2021. BlueTriton was caught flatfooted. Instead of rescinding the deal with Nestlé or taking legal action against it for having concealed the circumstance with regard to Arrowhead Spring Water, it used a legal team, headed by attorney Robert E. Donlan of Ellison Schneider Harris & Donlan, L.L.P., in an effort to contest the order. After a drawn-out hearing before Administrative Hearing Officer Alan Lilly, the cease-and-desist order was confirmed. BlueTriton then sued the California State Water Resources Control Board, which suspended the order. In July of this year, however, the U.S. Forest Service, based on an analysis performed by San Bernardino Mountain District Ranger Michael Nobles issued its own order that BlueTriton must “cease operations” in the San Bernardino National Forest and remove all of the siphoning and drafting equipment along with its pipelines used to collect and transfer water from Strawberry Canyon, located above the 5,000-foot elevation, to a facility further down the mountain.
In what was widely seen as a delay tactic that allowed the Arrowhead Spring Water bottling operation to continue, BlueTriton sued Nobles and his superiors, right up to Christopher French, the deputy chief for the National Forest System of the U.S. Forest Service; Randy Moore, the Chief of the U.S. Forest Service, also naming the United States Forest Service.
Quietly then, BlueTriton, just as Nestlé had done with it, entered into sales/merger discussions with Primo Brands.
It is not clear how thoroughly BlueTriton disclosed to Primo the difficulty it is having with both the U.S. Forest Service, the California State Water Resources Control Board, a whole slew of environmental organizations and numerous San Bernardino County resident activists with regard to the Arrowhead water bottling operation.
In his statement announcing Primo’s buyout of BlueTriton, Rietbroek, in touting Primo’s newly-acquired “iconic brand portfolio,” mentioned “widely recognized brands such as Poland Spring® and Pure Life®, high-growth premium brands like Saratoga® and Mountain Valley®, and other valuable brands with significant growth potential.” He did not include by name Arrowhead, which could be a signal that the company recognizes that the once highly profitable Arrowhead Spring Water segment of what had been for Nestlé’s and later BlueTriton’s operations is on its way to no longer being as valuable as it once was.
Nevertheless, there is the possibility that Rietbroek and Primo will continue to wage the battle to profit from the diversion of water from Strawberry Canyon, and will engage with the legion of ecological activists and the allies they have cultivated in the U.S. Forest Service and the California State Water Resources Control Board who are determined to stop them.
-Mark Gutglueck