The Coca-Cola Company (KO) hit a 52-week high of $45.00 on Nov 28, a day after it teamed up with beer and beverage company, SABMiller plc to create Africa’s largest soft drink bottling company.
On Nov 27, Coca-Cola announced an agreement with SABMiller and Gutsche Family Investments, to merge their bottling operations in southern and eastern Africa to form Coca-Cola Beverages Africa which would be the largest Coca-Cola bottler on the continent.
SABMiller, headquartered in London, England, is Coca-Cola’s largest bottler in South Africa. On the other hand, Gutsche Family Investments has majority stake in Coca-Cola Sabco, another South African bottling company of Coca-Cola.
Coca-Cola Beverages Africa, with about 30 bottling plants, will cater to 12 countries with potential revenues of $2.9 billion.
According to the agreement, 57% of the equity stake in Coca-Cola Beverages Africa will be held by SABMiller, 31.7% by Gutsche Family Investments and the rest by The Coca-Cola Company.
As part of the deal, The Coca-Cola Company will also acquire worldwide rights to SABMiller’s Appletiser brand and acquire or license rights to another 19 non-alcoholic ready-to-drink brands in Africa and Latin America for a cash consideration of about $260 million.
Most of Coca-Cola’s beverages are manufactured, sold and distributed by independent bottling partners, both domestic and international.
The Coca-Cola Company is in the process of shifting to a more franchise-based model under which it will gradually grant new expanded U.S. territories to its bottlers to distribute its beverages. The company plans to re-franchise majority of its company-owned North American bottling territories by 2017-end and a substantial portion of the remaining territories no later than 2020.
In international markets also, Coca-Cola is consolidating its bottling operations. In 2013, the cola giant sold majority interest in the Philippine bottling operations, acquired bottling operations in Myanmar and merged some of its bottling partners in Japan, Spain and Portugal and Brazil.
Moreover, the Zacks Rank #4 (Sell) company is buying equity stake in other growing companies. Coca-Cola bought 10% stake in Keurig Green Mountain, Inc. (GMCR) in Feb 2014 for about $1.25 billion and later announced its intention to gradually increase its stake to up to 16%. Coca-Cola also plans to purchase 16.7% stake in energy drink maker, Monster Beverage Corporation (MNST), later this year, for $2.15 billion. The new beverage partnership model should improve margins, going forward.
A better ranked beverage company is Dr Pepper Snapple Group, Inc. (DPS) carrying a Zacks Rank #2 (Buy).
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