Analysts believe ethical credentials will not change

Analysts believe ethical credentials will not change

Analysts believe The Coca-Cola Co will ultimately want to buy Innocent Drinks outright, after raising its stake in the smoothie maker.

Coca-Cola announced late last week (9 April) that it has upped its stake in smoothie maker Innocent Drinks to 58%.

The deal involves Coca-Cola buying the shares of Innocent’s two original start-up investors, who want to retire. In addition, each of the founders of Innocent will relinquish a minority of their own shares, but retain the majority of them.

The founders will continue to lead the business as before, Innocent said, and will still donate 10% of profits to charity.

But analysts question how long the founders will retain operational control of the business.

Altium Securities analyst Greg Feehily told just-drinks today (12 April): “Ultimately Coke wants to take over the whole company otherwise they wouldn’t be doing any of this but what you need when someone has created a fabulous brand, you have to be patient to get your hands on it and that’s what they’re doing.

"They’d love to have bought it outright last year I’m sure but that’s not the way the world works. Clearly they’re attaching a value to this.”

Innocent, which controls more than two thirds of the UK smoothie market, agreed to sell a stake of between 15% and 20% in its business to Coca-Cola last year for GBP30m (US$49m).

Richard Reed, co-founder of Innocent, said the new deal is “good news for all parties”.

Feehily believes that the ethical credentials the firm has spent so long building up will not change with the buy.

“Through a recession a lot of green and ethical credentials go out of the window in a unfortunately, with earnings under pressure and tax going up, it doesn’t stay at the front of the agenda as it were,” Feehily said.

He added: “I don’t think the management team would have stayed if Coke was going to change the way it was being run. They’ve made enough money and they don’t need to do it so they’re not going to do anything that is against their principles.

“I think they would rather probably cut their own arms and legs off rather than do things in a less ethical way.”

In November 2009, Innocent reported pre-tax losses of GBP11.2m (US$18.8m) for 2008, compared to profits of GBP12m in the year earlier.