agreed in principle to sell its stake in Australian bottling to one of its European affiliates, the latest move to reduce exposure to expensive bottling operations and focus on the more lucrative concentrate manufacturing business.
PLC, which bottles and distributes Coke products in Western Europe, valued Coke’s 31% stake in Australian bottlers at about $ 1.6 billion. Coca-Cola European Partners on Monday also offered to buy the remaining 69% of the Australian company,
Bottlers had lost their fizz in Coke for a while.
In 2017, Coke completed a series of deals in the US that shifted its bottling business there from a largely company-owned system to one run by local groups, some of which were family-owned, truck products to stores and operate production plants. A year later, Coke sold its Canadian bottling operations, including a distribution center and five soda manufacturers.
Getting rid of that asset-heavy operation means the number of Coke employees has fallen sharply in recent years, while helping to reduce its debt burden. However, Coke faced new challenges that were brought by the coronavirus crisis and have discontinued some brands, lay off some workers and change its marketing strategy.
On Monday, Coke said it would only sell its shares if the deal for Coca-Cola European Partners to acquire the remainder of Coca-Cola Amatil is implemented. Other Australian bottling shareholders, including investment funds and mom-and-pop investors, will need to vote to agree to the deal. The head of the Australian company said it plans to recommend a sale unless a winning bid emerges, adding that there is no guarantee the deal will work.
Coca-Cola European Partners is offering 12.75 Australian dollars, equivalent to $ 9.10, a share for Coca-Cola Amatil, about a 23% premium over the volume-weighted average price for the week. Australia-listed Coca-Cola Amatil rose about 16% in Monday trade, to A $ 12.50 per share.
Coke, however, agreed to sell its stake in Coca-Cola Amatil at a lower price – around A $ 10 per share. Coke may sell its shares to Coca-Cola European Partners in two or more stages over time, with several price variations.
In a statement, Coke said it supports the entire transaction, and it is in the best interests of the Coca-Cola system as a whole and shareholders in Australian and European companies. It said the deal would combine the strengths and capabilities of the two companies.
“We will open up further growth and value in their important market,” said Coke.
Coca-Cola European Partners, which says it is the world’s largest Coke bottler by revenue, said the deal would add geographic diversification and scale to the company’s footprint, which is currently focused exclusively on Western Europe. Coca-Cola Amatil sells Coke products in Australia, New Zealand, Fiji, Papua New Guinea, Samoa and Indonesia – which has a population of 270 million and is touted as a growth opportunity for Coke products.
Analysts said Monday’s deal reflects Coke’s overall strategy to limit its involvement in bottling operations, even though Coke has made a one-time investment to accelerate sales in promising markets, including putting $ 500 million into Coca-Cola Amatil’s Indonesian subsidiary about five years ago. .
“There are multiple stages in the process of making concentrate and getting it into the hands of consumers, and bottling and distributing it are two of the most capital intensive parts of the process,” Adam Fleck, regional director of equity research in Australia at Morningstar, said Monday. “They have historically relied on their bottling partners to take that capital.”
Coke still has about 19% stake in Coca-Cola European Partners.
Coca-Cola Amatil has faced many of the same challenges as bottlers in other markets. Consumers in Australia, the largest market by income, have shifted away from sugary and carbonated drinks due to health concerns, earning revenue despite the company’s efforts to diversify into distribution of coffee, energy drinks and alcohol.
Recently, sales have been hit hard by the coronavirus pandemic, particularly as people hoarded lower-margin products sold in grocery stores instead of higher-margin products in bars and restaurants, which were closed during the lockdown.
Stock brokerage firm Morgans said that Coca-Cola European Partners’ assessment of Coca-Cola Amatil was in line with other bottling deals, but it was not a “knock-out offer”. Coca-Cola Amatil could achieve higher margins in the future, mainly because it benefits from a cost-cutting program and easy lockdown for the coronavirus across the region, the company said.
Write to Mike Cherney at [email protected]
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