Three Coca-Cola Co. bottlers agreed to a
merger combining $12 billion in revenue across 13 European countries, part of a
global consolidation push by the U.S. soda giant to cut costs amid slowing
sales. Publicly traded bottler Coca-Cola Enterprises Inc., or
CCE, also would relocate its headquarters to the U.K. from the U.S. in the
planned tie-up with Spain’s privately held Coca-Cola Iberian Partners SA and
Germany’s Coca-Cola Erfrischungsgetränke AG, the latter owned by Atlanta-based
CCE, which makes and distributes Coke in eight European
countries including the U.K. and France, would have a 48% stake in the new
company, Coca-Cola European Partners PLC. Iberian Partners and Coke would have
34% and 18% stakes, respectively. The merger, which would create the world’s
largest independent Coke bottler by revenue, is subject to shareholder and
Coca-Cola European Partners will be based in London and
traded on the Euronext Amsterdam, New York Stock Exchange and Madrid Stock
Exchange. The Wall Street Journal reported last week the bottlers were in
advanced merger talks. Coke Chief Executive Muhtar Kent told analysts
in a conference call Thursday that the bulked-up bottler would help “more
effectively compete and drive growth” across Western Europe. He didn’t rule out
more bottling consolidation in the coming years.
The three companies estimated the merger would generate $350
million to $375 million in annual cost savings within three years that could be
plowed back into marketing Coke, Sprite and dozens of other beverage brands. Coke reported
in July that its beverage volumes in Europe were flat in the first six
months of 2015 as revenue fell 8% to $2.65 billion, weighed down by the
strengthening dollar. Coke’s global volumes rose just 1% in the first half of
the year, hurt by sluggish sales of carbonated drinks as consumers shift to
water and other beverages.
The company sells beverage concentrate that it distributes
to hundreds of mostly independent bottling partners across the globe. Making
concentrate is a higher-margin and less capital-intensive business than
bottling. Larger bottlers, though, have greater scope for efficiencies.
Coke has been eager to sell its German bottling operations
for several years and is in the midst of divesting its U.S. distribution
assets. In 2013, it sold its bottling assets in the Philippines to Coca-Cola
Femsa SAB, a Mexican bottler. In 2014, Coke backed a deal combining bottling
operations in Southern and Eastern Africa into one serving 12 countries. The
year before that, it helped cement a merger between seven Spanish and one
Portuguese Coca-Cola bottlers, creating the Iberian Partners business.
CCE said in July its beverage volumes declined 1% in the
second quarter from a year earlier. Revenue plunged 18% to $1.9 billion,
dragged down by weakening European currencies. By relocating its headquarters
to Europe, CCE will no longer have to convert its results into dollars or pay
U.S. taxes on repatriated profits. But John Brock, CCE’s chief
executive, who will become CEO of the combined company, said the planned merger
isn’t a so-called inversion deal to generate tax savings. CCE was mainly a U.S.
bottler until 2010, when Coke bought CCE’s North American operations.
CCE shareholders will receive one share in the combined
bottler for each CCE share and a one-time cash payment of $14.50 per share. The
newly created bottler will fund the $3.3 billion payment with newly issued
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