Coca-Cola close to buying bottling unit

Coca-Cola is close to buying the North American operations of its largest bottler, Coca-Cola Enterprises, for between $13-15bn, in a dramatic reversal of a strategy the soft-drink maker had embraced for more than 20 years.

Coke’s possible reunion with CCE, which went public in 1986, mirrors the steps PepsiCo took last year to snap up its largest bottlers. And like PepsiCo’s deals with Pepsi Bottling Group and Pepsi Americas, the CCE acquisition would grant Coke greater flexibility and control in how it distributes sodas and non-carbonated beverages to different retail customers.


Coke’s US bottlers are handling an increasingly broad range of small brands, including tea, juices and enhanced water, as well as its established soda brands.

As part of the proposed deal, CCE would in turn acquire Coke’s bottling businesses in Scandinavia and Germany, people familiar with the matter said on Thursday. The up to $15bn that Coke will likely pay for the North American business includes debt, according to the people.

Discussions between the two companies had continued late Wednesday, and the possibility remained that the talks could end without a deal, the people said.

Coke and CCE could not be reached for comment on the discussions.

CCE’s shares surged more than 25 per cent in late trading. Coke slipped less than 1 per cent in after-hours trading.

Wal-Mart Stores’ emergence as the dominant retailer, new trends in consumer tastes and the onset of hundreds of new beverage brands have chipped away at the benefits Coke and PepsiCo enjoyed in keeping their biggest bottlers at arms’ length.

The separation gave bottlers little incentive to take risks with new products, and left the two sides haggling over how to share sales.

Coke holds a 35 per cent stake in Coca-Cola Enterprises, which also bottles and distributes Coke in parts of western Europe, including the UK.

CCE is the largest of a patchwork of 74 different US bottlers that buy soda syrup from Coke and then bottle and distribute the finished drinks, usually delivering directly to stores. It handles around 42 per cent of Coca-Cola’s sales of soda concentrate in the US, while its North American business accounts for around 72 per cent of its total revenues of $21bn.

The deal would mark a dramatic shift in Coca-Cola’s strategy under Muhtar Kent, its chief executive, who is himself a veteran of the company’s bottling system.

Mr Kent and his predecessor Neville Isdell have devoted considerable energy to improving Coke’s sometime troubled relations with its bottling partners, and resolving tensions over product pricing, marketing coss and other issues.

He had previously argued that using so called ”equity” bottling entities such as CCE, Coca-Cola Femsa in Latin America and Coca-Cola Amatil in Eastern Europe and Asia as well as fully independent bottlers gave it an enhanced ability to respond to local markets.

But the move to acquire CCE’s North American business follows PepsiCo’s decision to take control of its two largest North American equity bottling groups – Pepsi Bottling Group and Pepsi Americas – in a $7.8bn deal that is expected to close shortly.

PepsiCo argued that direct control would enhance it ability to coordinate bottling and distribution of its increasingly wide range of soft drinks and snacks in the important US market.

Coke’s US bottlers are also handling an increasingly broad range of small brands, including tea, juices and ehanced waters, as well as its established sparkling soda brands.

The move is also likely to simplify the operations of the company’s sales to the food service business, where restaurant operators are currrently serviced by a mix of wholesalers, bottlers and direct company sales