Coca-Cola Enterprises may have its eye on expansion

Coca-Cola Enterprises may have its eye on expansion

When SABMiller announced last November it would team up with The Coca-Cola Co to control bottling rights across southern and east Africa, there was ardent speculation over which territories the brewer could move into next.

Top of the hit list was Coca-Cola HBC's operations in Nigeria, currently the bottler's best-performing market. However, according to analysts at Bernstein, fellow Coca-Cola bottler Coca-Cola Enterprises (CCE) may also have designs on Coca-Cola HBC's territories.

Coca-Cola HBC has been through a difficult few years, with the company facing the same challenges as other soft drinks makers as demand for CSDs fall. However, unlike other companies, Coca-Cola HBC has undergone some fundamental changes. Not helped by the economic crisis in Greece, the company has switched its HQ from Athens to Switzerland and moved its listing from the Athex to the more buoyant London Stock Exchange.

Still, underlying full-year sales and profits, released in February, remained down.

According to Bernstein, however, Coca-Cola HBC remains an interesting proposition because it is one of the few Coca-Cola bottlers that has exposure to both developed and emerging markets. This double-coverage, says Bernstein, is "generally contrary to Coca-Cola's philosophy" - which is where CCE comes in.

In order to align more with Coca-Cola's preferred structure of bottlers playing in either developed or emerging markets - but not both - Bernstein suggests CCE should take over Coca-Cola HBC mature markets, markets that would fit in snugly with CCE's existing territories of the UK, Nordics, France et al.

Meanwhile, Coca-Cola HBC would run the remaining developing regions, which include Belarus, Bosnia and Herzegovina, Moldova, Nigeria, the Russian Federation and Ukraine.

Taking over all of CCH's established markets would, according to Bernstein, add 615m unit cases, to CCE and boost its volumes by nearly half. It would add US$3.3bn in sales, or nearly 40% of the company's total. The price for CCE would be an estimated US$2.1bn.

However, not all of Coca-Cola HBC's developed markets are equally attractive, and Bernstein suggests CCE passes on Greece and Italy, where economic challenges are stifling demand. Better, the analyst says, to just take Ireland, Austria and Switzerland for an estimated US$1bn.

Then, if CCE were to shift its headquarters from the US to Europe, tax benefits would accrue, especially if it chose as its new home the tax-generous Ireland (a 12.5% rate compared to 21% in the UK).

It sounds like a simple plan. Is Coca-Cola HBC willing to play ball?