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Coca-Cola (KO) to Buy AB InBev's Stake in CCBA for $3.15B

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The Coca-Cola Company (KO - Free Report) has entered into an agreement to buy Anheuser-Busch InBev’s (AB InBev) stake in Coca-Cola Beverages Africa, or CCBA. The latest deal is in sync with Coca-Cola’s plan, which was announced in October after AB InBev’s acquisition of SABMiller, to exercise its right to acquire AB InBev's interest in CCBA.

The beverage giant intends to temporarily hold the territories until they can be refranchised to other partners.

The Deal

Per the deal, Coca-Cola will purchase AB InBev’s 54.5% equity stake in CCBA for $3.15 billion. Notably, CCBA operates in South Africa, Namibia, Kenya, Uganda, Tanzania, Ethiopia, Mozambique, Ghana, Mayotte and Comoros.

Additionally, both the parties have agreed that Coca-Cola will acquire AB InBev’s interest in bottling operations in Zambia, Zimbabwe, Botswana, Swaziland, Lesotho, El Salvador and Honduras for an undisclosed amount. We note that AB InBev is a major bottler of Coke’s rival, PepsiCo Inc. (PEP - Free Report) , in Latin America.

The transactions are subject to regulatory approvals and are expected to be complete by the end of 2017.

It is worth mentioning that Coca-Cola established CCBA in 2014, in collaboration with SABMiller and South Africa-based bottling partner, Gutsche Family Investments.

The “Asset Light’’ Strategy

Under the “asset light’’ strategy, Coca-Cola mainly aims to focus on the more profitable core businesses as soda consumption continues to decline. The Atlanta-based company seeks to lower its ownership of facilities that are capital intensive and offer low margins.

Since 2014, Coca-Cola has been divesting and merging bottling operations in many international markets in its efforts to revamp its bottling system and in turn, drive margins and growth. In doing so, three of its European bottlers — Coca-Cola Enterprises, Coca-Cola Iberian Partners and Coca-Cola Erfrischungsgetränke AG (German bottler) — merged to form a new Western European bottler named Coca-Cola European Partners Inc. in May 2016.

Coming to its domestic operations, Coca-Cola is refranchising the majority of company-owned North American bottling territories to existing as well as new bottlers in order to create a more efficient system.

Share Performance

Coca-Cola’s top-line underperformance has been quite noticeable in the first nine months of 2016. Although the stock outperformed the broader Beverages-Soft Drinks industry in the year-to-date period, it has lost over 3%. This is because Coca-Cola has been reeling under the impact of severe macroeconomic challenges in certain international markets and a strengthening U.S. dollar.



Zacks Rank & Key Picks

Currently, Coca-Cola has a Zacks Rank #3 (Hold).

A better-ranked consumer staples stock is Lancaster Colony Corporation (LANC - Free Report) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lancaster’s earnings are expected to increase 7.3% for the current fiscal year.

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