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US: Buffett backs Coca-Cola Co, CCE deal

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Billionaire investor Warren Buffett has backed Coca-Cola Co's plan to acquire the North American operations of its largest bottler, Coca-Cola Enterprises.

Buffett, known as the 'Oracle of Omaha' for his ability to single-handedly affect share prices, gave the Coca-Cola deal his blessing in an interview on business news channel CNBC yesterday (1 March).

"I think on balance I like it," he told the channel.

The timing of Coca-Cola's deal to bring its largest bottler in-house in its home market took many analysts by surprise last week. But, the move follows PepsiCo's deal to acquire full control of its own major bottlers, and so signals a significant shift on the North American soft drinks market. 

"It needed rationalisation and this move is a big, big step toward rationalising it, make it so it's more friendly to the big box retailers of Walmart," said Buffett, who is a Coca-Cola investor.

Some analysts have speculated that Coca-Cola may not want to retain control of bottling operations in North America over the long-term.

Stifel Nicolaus analysts Mark Swartzberg said in a note last week: "Coke's new plan is an intermediate step. Next-step options include Coke FEMSA, Coke's largest bottler in Mexico, in our opinion."

Coca-Cola FEMSA has said publicly in recent weeks that it is on the hunt for acquisitions, and not necessarily in the group's Latin America heartland.

While no mentioning FEMSA speculation, Buffett said lower profit margins in bottling mean that "over time, you would hope that Coca-Cola would have less money involved in the bottling business".

To view the CNBC transcript on Warren Buffett, click here.


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