By Mike Cherney
SYDNEY-- Coca-Cola Co. agreed in principle to sell its stake in
its Australian bottler to one of its European affiliates, its
latest move to reduce exposure to costly bottling operations and
focus on the more lucrative concentrate-making business.
The deal between Atlanta-based Coke and Coca-Cola European
Partners PLC, which bottles and distributes Coke products in
Western Europe, values Coke's 31% stake in the Australian bottler
at roughly $1.6 billion. Coca-Cola European Partners on Monday also
offered to buy the remaining 69% of the Australian company,
Coca-Cola Amatil Ltd.
Bottling has been losing fizz within Coke for a while.
In 2017, Coke completed a raft of deals in the U.S. that turned
its bottling business there from a largely company-owned system to
one run by local groups, some of them family owned, that truck
product to stores and operate production plants. A year later, Coke
sold its bottling operations in Canada, including distribution
centers and five soda-making factories.
Jettisoning those asset-heavy operations has meant Coke's
employee numbers have fallen sharply in recent years, while helping
to reduce its debt burden. Still, Coke is facing new challenges
brought on by the coronavirus crisis and has discontinued some
brands, laid off some workers and revamped its marketing
On Monday, Coke said it would only sell its stake if the deal
for Coca-Cola European Partners to acquire the rest of Coca-Cola
Amatil was implemented. The Australian bottler's other
shareholders, including investment funds and mom-and-pop investors,
would need to vote to approve the deal. The Australian company's
leadership said it planned to recommend the sale unless a superior
offer emerges, adding that there's no guarantee the deal will go
Coca-Cola European Partners offered 12.75 Australian dollars,
the equivalent of $9.10, a share for Coca-Cola Amatil, a roughly
23% premium on the one-week volume-weighted average price.
Australia-listed Coca-Cola Amatil shares gained about 16% in Monday
trading, to A$12.50 a share.
Coke, however, agreed to sell its shares in Coca-Cola Amatil at
a lower price--around A$10 per share. Coke could sell its shares to
Coca-Cola European Partners in two or more tranches over time, with
some variation in the price.
In a statement, Coke said it is supportive of the overall
transaction, and that it is in the best interests of the Coca-Cola
system overall and of shareholders in the Australian and European
companies. It said the deal would combine the strengths and
capabilities of both companies.
"We will unlock further growth and value in their important
markets," Coke said.
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 at the
moment is 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 has been 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, though Coke has made
one-off investments 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 throughout the process of creating
concentrate and getting it into consumer hands, and bottling it and
distributing it are two of the most capital-intensive parts of that
process," Adam Fleck, regional director of equity research in
Australia at Morningstar, said Monday. "They historically have
relied on their bottler partners to take on that capital."
Coke still has a roughly 19% stake in Coca-Cola European
Coca-Cola Amatil has faced many of the same challenges as
bottlers in other markets. Consumers in Australia, its largest
market by revenue, have shifted away from sugary, carbonated
beverages due to health concerns, hitting revenue despite the
company's efforts to diversify into coffee, energy drinks and
More recently, sales were hit by the coronavirus pandemic,
particularly as people stocked up on lower-margin products sold in
grocery stores instead of higher-margin products at bars and
restaurants, which were closed during lockdowns.
Stockbroking firm Morgans said Coca-Cola European Partners's
valuation of Coca-Cola Amatil is in line with other bottler
transactions, but that it isn't a "knock-out offer." Coca-Cola
Amatil could achieve higher margins in the future, particularly as
it benefits from a cost-cutting program and coronavirus lockdowns
ease around the region, the firm said.
Write to Mike Cherney at email@example.com
(END) Dow Jones Newswires
October 26, 2020 03:36 ET (07:36 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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