By Peter Evans And Mike Esterl
Coca-Cola Co. and U.K. brewer SABMiller PLC plan to combine
soft-drink bottling operations in southern and eastern Africa, in a
deal that reflects both companies' efforts to broaden their
beverage offerings.
As part of the deal, Coke is paying $260 million for the
world-wide rights to SABMiller's Appletiser, a carbonated apple
juice, and the rights to another 19 nonalcoholic brands in Africa
and Latin America. Coke has been diversifying beyond its core soda
brands of Coke, Sprite and Fanta as more consumers shift to waters
and juices.
In the U.S. earlier this year, Atlanta-based Coke moved to
acquire minority stakes in energy-drink maker Monster Beverage
Corp. and Keurig Green Mountain Inc, a maker of countertop coffee
machines.
For SABMiller, whose beer brands include Peroni, Grolsch and
Miller Genuine Draft, the deal with Coke marks a further step
beyond its core brewing business. Soft drinks now make up 20.6% of
SABMiller's total sales by volume, compared with 17.2% in 2009.
The shift reflects in part stronger growth for nonalcoholic
drinks. Volume growth in the company's soft-drinks portfolio was 5%
in its most recent financial year, compared with just 1% for
beer.
"Soft drinks are increasingly important for us," SABMiller Chief
Executive Alan Clark said earlier this month.
Bottling soft drinks is a less-demanding process compared with
brewing beer--even if the margins are ultimately lower--and
represents a simpler way to expand in Africa for SABMiller.
The combined bottling operation will serve 12 countries and
supply 40% of all Coca-Cola volume in Africa, the two companies
said Thursday. SABMiller will hold 57% of newly created Coca-Cola
Beverages Africa and Coke will own 11.3%. The remainder will be
owned by Gutsche Family Investments, currently a major shareholder
in Coke's African bottling operations.
"A combined Coca-Cola bottling operation is further evidence of
our commitment to Africa, and our firm belief in the tremendous
growth prospects that the continent offers," said Muhtar Kent,
Coke's chairman and CEO.
Coca-Cola Beverages Africa will have annual revenue of $2.9
billion, making it the biggest Coke bottler in Africa. Phil
Gutsche, current chairman of Gutsche Family Investments, will head
the new company, which will be based in Port Elizabeth, South
Africa.
Coke is in the middle of a cost-cutting drive amid falling soda
sales in many of its key markets, especially North America. The
company last year negotiated a merger between seven separate
Spanish Coca-Cola bottlers in a bid to improve efficiency.
Coke has dozens of large bottling partners around the globe. It
prefers minority stakes in bottling and distribution assets,
focusing on selling soda concentrate, which has higher profit
margins and requires lower capital expenditures.
The soda giant is in the midst of refranchising its North
American distribution and recently sold bottling assets in the
Philippines to Coca-Cola Femsa SAB, its Mexican bottler. Coke also
has been seeking a buyer for its German bottling assets.
Coke's other bottling partners in Africa include Coca-Cola HBC
AG, which distributes in Nigeria, and Castel Group.
SABMiller also distributes Coke beverages in Honduras and El
Salvador.
The latest deal expanding SABMiller and Coke's partnership comes
amid industry speculation that Anheuser-Busch InBev NV, the world's
largest brewer, could be gearing up for another major
acquisition.
Many investors and analysts think AB InBev could attempt to
acquire SABMiller, the world's No. 2 brewer by revenue. But there
also has been speculation that AB InBev could make an even bigger
splash at some point by expanding beyond beer and trying to acquire
Coke or PepsiCo Inc., Coke's chief soda rival. AB InBev, which has
declined to comment on potential acquisition targets, already
distributes PepsiCo drinks in Latin America.
Razak Musah Baba contributed to this article.
Write to Peter Evans at peter.evans@wsj.com and Mike Esterl at
mike.esterl@wsj.com
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