Coca-Cola Africa stake, a hard pill to swallow, say analysts

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Consolidation strategy faces stumbling block in world’s fastest-growing carbonated drinks market

Coca-Cola’s ambition of slimming down the number of its global franchisees has been dealt a blow after analysts said the $3.5bn-$5bn stake in its African bottling operation would be too big for a single buyer to swallow.

The 54 per cent holding is up for grabs in the $14bn soft drinks market, which grew 10 per cent last year making it the world’s second fastest-growing region, according to research group Canadean.

The Coca-Cola Beverages Africa stake will first be acquired by the US company, which said on Monday it wanted to buy the holding under change of control provisions triggered by Anheuser-Busch InBev’s £79bn takeover of rival brewer SABMiller.

Coca-Cola appeared to recognise that a single buyer was unlikely as it said in a statement that it would negotiate with “potential partners” to refranchise CCBA.

The Atlanta-based group has been pushing its franchisees to consolidate in a drive for efficiency that led to last year’s three-way merger in Europe under Coca-Cola Enterprise Partners, chaired by Sol Daurella.

SAB held a majority stake in CCBA, with Sabco and Coca-Cola as minority partners. The company is responsible for 40 per cent of Coca-Cola’s volumes in Africa, where there are 30 Coca-Cola franchisees according to Moody’s, the rating agency.

Coca-Cola’s decision to buy out the SAB stake was likely to have been driven by AB InBev’s role as a large bottler for rival PepsiCo in Latin America.

Also, Coca-Cola is itself regarded by analysts as a potential future target for AB InBev.

“Coke is scared of an acquisition by AB InBev,” said Ali Dibadj, analyst at Bernstein “Thus, we presume Coke would very much try to avoid giving AB InBev’s CEO Carlos Brito a look under the hood of the company.”

The CCBA stake is most likely to appeal to UK-based Coca-Cola Hellenic, which operates in Russia and eastern Europe but also in Nigeria, one of Africa’s biggest soft drinks markets.

Dimitris Lois, Coca-Cola Hellenic chief executive, told analysts in June: “We’re going to be more active in M&A” citing its “great experience in emerging [markets]” and desire for geographical expansion.

Equatorial Coca-Cola Bottling Company, the African business part-owned by Spain’s Daurella family, and Sabco, the South African bottler whose main shareholder is the Gutsche family, are also likely bidders, said analysts.

CCEP has its hands full integrating the Spanish and German operations but has said it is interested in further expansion.

Robert Ottenstein, analyst at Evercore ISI said: “There is a reasonable chance that an agreement could come in which CCH would acquire some of the African assets and in return agree to sell western European assets, such as Ireland, Austria, Swizerland and Italy, to CCEP.”

When CCBA was formed in 2014 by combining operations in 12 countries, Muhtar Kent, chief executive of Coca-Cola, hailed it as a company that would: “leverage the scale, resources, capability and efficiency needed to accelerate Coca-Cola growth”.

The stake could also appeal to Sabco, and Heineken, the brewer that has the Coca-Cola franchise in five African countries though it has placed more emphasis on expanding its beer operations in Asia.

Castel, the French drinks company whose African joint venture AB InBev has also inherited as a result of the SAB takeover, may also be interested. But Mr Ottenstein said that Coca-Cola might not be keen to sell on the stake to Castel because Castel is seen as another potential acquisition target for AB InBev.

Financial Times of London

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