Coca-Cola European Goes Global With $6.6 Billion Deal
(Bloomberg) -- Coca-Cola European Partners Plc agreed to buy Australian bottler Coca-Cola Amatil Ltd., creating a global producer of packaged beverages to better withstand a slowdown in the industry and the shift away from sugary drinks.
The purchase values Sydney-based Coca-Cola Amatil at A$9.23 billion ($6.6 billion), a 19% premium to where its shares traded last week. The target’s board intends to unanimously recommend the offer.
The A$12.75-per-share cash deal would double the European company’s potential market at a stroke, putting almost 300 million consumers within reach in the Southern Hemisphere, including the key developing nation of Indonesia.
Such growth opportunities are all the more attractive in an industry facing slowing sales, partly due to the coronavirus pandemic, but also amid a broader shift by health-conscious consumers. Beyond fizzy staples like Coca-Cola, Fanta and Sprite, the Australian company has diversified into whiskey, rum and tequila, as well as beer and ground coffee.
Damian Gammell, chief executive officer of Coca-Cola European Partners, said the acquisition would create “a broader and more balanced geographic footprint” that will “enable us to scale up even faster.”
Coca-Cola Amatil has 32 production facilities in Australia, New Zealand, Fiji, Indonesia and Papua New Guinea, according to its website. The company changed its structure last year around more geographically-focused units.
The proposed acquisition, the largest deal involving an Australian company so far this year, would mark the first major cross-border transaction in the country since the pandemic curtailed much of the year’s merger activity. Bloomberg News reported the companies were in talks on Saturday.
Coca-Cola Amatil stock soared 16% to close at A$12.50 in Sydney on Monday, shy of the offer value. The deal is subject to due diligence by Coca-Cola European Partners, which rose 8.5% to 35.25 euros in early London trading.
“It’s not a once-in-a-lifetime bid, but it’s around the right price for Amatil shareholders,” said Daniel Mueller, a fund manager at Vertium Asset Management in Sydney, which owns Coca-Cola Amatil shares. “It’s a very difficult stock to take over without the parent’s permission, so getting a control premium is an achievement.”
It’s a sensible time to buy Coca-Cola Amatil from an earnings perspective, as drinks demand should benefit from an easing of Covid-19 restrictions in Australia, Mueller said.
Coca-Cola European Partners on Monday reported a 3% slump in third-quarter revenue to 3.18 billion euros ($3.76 billion), and declined to provide full-year financial guidance because of uncertainty over the pandemic.
The company will enter a separate agreement to buy Atlanta-based Coca-Cola Co.’s 31% stake in the target on less favorable terms than those offered to other shareholders. It will pay Coca-Cola A$9.57 a share in cash for 11% of the Australian company, and also work with Coke to buy its remaining 20% stake.
Coca-Cola has been transforming itself through takeovers as soft drinks face pressure from government authorities over an obesity crisis and consumers increasingly favor lower-calorie options. It has grown in dairy and bought U.K. coffee chain Costa, while ceding bottling operations in India and acquiring others in Africa.
Coke is streamlining its structure, going from 17 global business units to nine and eyeing layoffs in North America and Europe following buyout packages. The company is also cutting the number of products it sells, with a goal of offering about 200 master brands, a 50% reduction from the current level.
Coca-Cola European Partners is the world’s largest Coke bottler by revenue, with 48 production sites in Germany, Spain, Great Britain and elsewhere, according to its website. It was created from the three-way merger of Coca-Cola Enterprises Inc., Coca-Cola Iberian Partners and Germany’s Coca-Cola Erfrischungsgetranke AG in 2015.
The biggest shareholder is Cobega, an investment vehicle belonging to Spain’s Daurella family, followed by the U.S. parent company, Bloomberg data show.
The European bottler decided early this year to halt its buyback program and defer a dividend to preserve cash.
Coca-Cola Amatil has been named as a potential bidder for Australian liquor assets being sold by Japan’s Asahi Group Holdings Ltd., which could require a capital raise, according to analysts at Citigroup Inc.
©2020 Bloomberg L.P.