• Coca-Cola Co CEO says discussions pre-date PepsiCo deal
  • CCE share price rockets
  • Dr Pepper Snapple could benefit - analyst
Groups have been in talks for "some time" - says Coca-Cola Co

Groups have been in talks for "some time" - says Coca-Cola Co

The Coca-Cola Co has insisted its move to acquire the North American operations of Coca-Cola Enterprises (CCE) is “absolutely proactive play” and not a reaction to PepsiCo’s similar announcement last year.

The announcement this morning (25 February), in what the firms said is a “substantially cashless transaction”, will see Coca-Cola acquire CCE's entire North American business, which consists of around 75% of US bottler-delivered volume and almost 100% of Canadian bottler-delivered volume.

The news represents a significant U-turn in Coca-Cola Co's thinking – a firm that previously was insistent it didn’t want to be in the business of owning and managing its bottlers outright.

Speaking to investors following the firm’s announcement, Coca-Cola's CEO Muhtar Kent said it had been in discussion with CCE “for quite some time” to seal the partnership deal.

“This action today is actually something we have been talking about for a long time, so it’s an evolution. We have been doing lots of things in [the] market place, but this is in no way an about face, this is totally in line with our 2020 Vision in order for us to achieve that.”

He added: “We have two very large profit pools that are being enhanced for us and we have a firm belief that the franchise operations in North America have to change, and this is a logical and natural evolution of that.

“This is an absolutely proactive play from our part in how we strengthen two major geographies and two major profit pools for us, totally different from any other transaction out there.”

At the close of the transaction, Coca-Cola will have direct control over approximately 90% of the total North America volume, including its current direct businesses. The acquisition includes consideration of Coca-Cola’s current 34% equity ownership in CCE, valued at $3.4bn.

In a concurrent agreement, CCE will buy Coca-Cola’s bottling operations in Norway and Sweden for $822m. It will also have the right to acquire Coca-Cola’s 83% equity stake in its German bottling operations 18 to 36 months after closing for fair value.

John Brock, chairman and CEO of CCE, reiterated Kent’s insistence that the deal was not a competitive reaction to PepsiCo’s move.

“CCE had its most successful year ever in 2009, in North America and in Europe. Looking at the market place in 2009 specifically in North America we gained share, we won on visual inventory and cases on display, so you could say we didn’t see a lot of impact from our principal competitors move.

“This transaction is something we have been talking about for a long time, before Pepsi announced their deal so this is not a competitive reaction and frankly in the US marketplace we are winning.”

Stifel Nicolaus analyst Mark Swartzberg believes the deal may also benefit Dr Pepper Snapple Group (DPS), which reported full-year results today.

CCE North America currently distributes around 27% of DPS's region carbonated soft drinks, similar to the 26% of region carbonated soft drinks distributed by Pepsi bottlers being purchased by PepsiCo.

“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,” Swartzberg said. “This, in our opinion, means another likely win of significance for DPS, whether it sticks with CCE, shifts to PepsiCo, and/or moves volume in-house.”

Coca-Cola's shares dropped by $2.35 or 4.26% to $52.81 at 11:13 ET today. CCE's share price rocketed by 35% to $25.95.

For the deal at-a-glance, click here.

For just-drinks' comment on the deal, click here.