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Analysis - Coca-Cola Co, PepsiCo should target sell-offs

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The Coca-Cola Co and PepsiCo should both consider divestments to ensure future growth, an analyst has advised, while PepsiCo should pursue a full split of its beverage unit from its snacks division.

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In a note to clients late last week, Bernstein Research recommended that both soft drinks companies sell off their North American bottlers in the coming years. Such a move was described by the analyst as "likely... as long as pricing is not competitive and CSD volumes don't decline faster".

As well as its bottlers in North America, Coca-Cola may still sell its German bottler to Coca-Cola Enterprises, Bernstein suggested, although CCE has not yet taken up its option to buy the division.

PepsiCo, meanwhile, would benefit from a split of its global snacks operations, as the unit provides "faster growth" and is a "better business than beverages".

"We believe that more focused management, execution, and capital allocation generally could generate additional value for investors longer-term," said Bernstein of Coca-Cola and PepsiCo, as well as several US household & personal product companies. "Additionally, strategic buyers that can extract more value from divestments (ie, through greater synergies, local scale, and expertise) may be able to pay premium valuations and enhance the overall benefit to shareholders."

Since 2008, the analyst said, Coca-Cola has made 28 acquisitions and 16 divestments, the most notable being its stake in Mexico's Grupo Continental for US$2.3bn in 2011. PepsiCo, meanwhile has made 21 purchases and 16 sales in the last five years, with China Bottlers (Hong Kong) Ltd to Tingyi last year generating $600m.


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