Analysis - Germany a Pawn in Coca-Cola Enterprises' deal with Coca-Cola Co

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The 'will they, won't they?' debate over Coca-Cola Enterprises' interest in Coca-Cola Co's German bottling franchise dropped off the radar last year, but the likelihood of a transaction is set to bubble up again in the coming months. Indeed, both CCE's and Coca-Cola's most recent figures suggest that such a move is more probable now than at any previous time.

Is Coca-Cola Cos German bottler back on Coca-Cola Enterprises radar?

Is Coca-Cola Co's German bottler back on Coca-Cola Enterprises' radar?

Last week, the US company, which operates in Western Europe, reported a tough set of Q3 numbers, with net profits falling by almost 18% on a near-2% dip in sales. CCE subsequently lowered its full-year earnings growth forecast to +10%.

Coca-Cola remains the owner of CCE AG, its bottling operations in Germany, but is still keen to divest the division. Despite not taking its first-refusal option on the unit, which lapsed in May last year, CCE continues to make noises about wanting to increase its presence in Western Europe.

Meanwhile, CCE's existing, five-year concentrate price agreement with Coca-Cola expires next year.

The poor numbers of the last quarter, coupled with the pair's continued overtures and the rapidly-approaching end of the price deal suggest to many observers that CCE AG will come into play again some time soon.

In a note to clients earlier this week, Stifel notes: "We ... think management commentary, along with Coca-Cola Co commentary, leaves open the possibility of a purchase of CCE AG".

Wells Fargo concurs: "We continue to believe an acquisition of Germany would benefit CCE and think recent developments may increase the likelihood of a deal," says senior analyst Bonnie Herzog.

Ian Shackleton at Nomura specifically links the possibility of a transaction to the expiration of the concentrate pricing agreement between the two. "We can ... see the attraction for CCE to buy this (CCE AG) as it could open the way for an extension of the ... pricing agreement beyond 2015," he says.

"In February 2014, bottler Coca Cola Hellenic revealed that Coca-Cola Co had re-based its concentrate prices by EUR40m (circa +2% to +3%), and we do see a similar threat for CCE ... at the end of 2015".

Current consensus is that the purchase of CCE AG by CCE has a 50% probability. This makes it more likely than last year, when value proved a stumbling block. And, with Coca-Cola suffering more endemically of late, this may be even less of an issue than it once was.

A final, juicy extra to consider: One of the more outlandish suggestions is that CCE could merge with Coca-Cola Hellenic, which operates in markets including Austria, Ireland, Italy and Switzerland. While this throws up an enticing footprint across Western Europe, however, this may be for another day, with both companies seemingly enjoying their respective journeys.

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