Coca-Cola Co’s $12bn deal to acquire the North American operations of Coca-Cola Enterprises has dominated business news headlines in the last 24 hours. Here, just-drinks digests the market reaction.
Shares in Coca-Cola Enterprises (CCE) rocketed by around a third following the announcement of the deal yesterday (25 February). CCE Shareholders in the bottler are set to reap a collective $4bn from the deal.
Shares in The Coca-Cola Co, meanwhile, fell from around the $56 mark to day low of sub-$53 and have stayed there into today.
Dr Pepper Snapple Group, which reported solid progress in its full-year earnings yesterday, also saw its share price rise by 7% following news that it stands to receive a windfall from the CCE deal due to current distribution agreements.
Immediate thoughts on the tie-up were, quite naturally, that Coca-Cola has decided to mimick the PepsiCo business model. PepsiCo is further down the track, having today announced the completion of a deal to take full control of its own major bottlers, Pepsi Bottling Group and PepsiAmericas.
Suggestions of copycat planning were, however, denied by Coca-Cola’s CEO, Muhtar Kent, yesterday. He told analysts that CCE and Coca-Cola were in talks even before PepsiCo went public with its plan.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataWe will never know the ins and outs of it, but what it does show is that both companies believe that their North American business model requires seismic change.
While Wall Street once welcomed soft drinks firms’ separation from their bottlers, “consumer behaviour has changed”, argued Rob Cox and Wei Gu on Reuters BreakingViews.
Both Coca-Cola, and PepsiCo before it, have pointed out that a combined unit offers more flexibility to meet the diverse demand in today’s soft drinks market in North America. Staple brands like Coke and Pepsi have been joined by a plethora of new categories, such as functional waters, energy drinks and teas.
Some analysts questioned what might come next.
Mark Swartzberg, of Stifel Nicolaus, said that the main indirect winner from the deal is Dr Pepper Snapple (DPS), which “finds itself with potential for another material financial windfall”. DPS is already set to receive $900m in licensing fees from the PepsiCo bottlers deal.
CCE North America currently distributes just over a quarter of DPS’ carbonated drinks in the region, similar to the amount distributed by Pepsi bottlers, according to Stifel. “We believe contracts for such volume have change of control provisions, as had been customary historically and is the case with bottling handled by Pepsi bottlers.”
On Coca-Cola, Swartzberg mused as to the company’s endgame. “Coca-Cola’s new plan is an intermediate step. Next-step options include Coke FEMSA, Coke’s largest bottler in Mexico, in our opinion,” he said.
Stay informed for just £1! *
Subscribe to Just Drinks for unbiased coverage of the global drinks industry, offering insights into the corporate strategies of beverage manufacturers and brands worldwide.
What’s included in your subscription:
- Unlimited access to Just Drinks content including daily global news, in-depth analysis, and interviews with C-suite executives
- Unbeatable coverage of categories from beer, wine and spirits to soft drinks and hot beverages
- Unrivalled drinks industry comment from leading sector specialists
Ready to stay informed? Subscribe now and gain access to exclusive content.
Have a subscription? Sign in
For further details on subscribing, click here. Need multi-user access? Explore our corporate subscriptions now.
*After your 1-month trial, your subscription will continue at £315 per year.
