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The Coca-Cola FEMSA S.A.B. de C.V. (KOF - Snapshot Report) has entered into a definitive agreement to buy 51% stake in The Coca-Cola Company’s (KO - Analyst Report) franchise bottler in Philippines, Coca-Cola Bottlers Philippines, Inc. (CCBPI), for $688.5 million in cash.

The transaction is expected to close in early 2013. Per the agreement, Mexico’s Coca-Cola FEMSA reserves the option to acquire the remaining 49% of Coke’s Philippine bottling plant at any time during the following seven years. The largest Coke bottler also has an option to sell back its 51% share to The Coca-Cola Company in the sixth year.

The deal will expand Coca-Cola FEMSA’s presence beyond Latin America to the fast growing emerging market of Philippines. Coca-Cola’s products are very popular in this country, which boasts one of the highest per capita consumption rates of Coca-Cola products. CCBPI is expected to generate revenues of approximately $1.1 billion in 2012. The bottler, which has 23 production plants, is expected to sell approximately 535 million unit cases of beverages in the year.

The Coca-Cola Company has ownership interests in many other bottling operations, including Coca-Cola Enterprises Inc., (CCE - Analyst Report), Coca-Cola Hellenic Bottling Company S.A. (CCH - Snapshot Report), and Coca-Cola Amatil Ltd. In October 2010, the company acquired Coca-Cola Enterprises’ North American bottling and distribution operations. In December 2011, the company acquired Coca-Cola Great Plains Bottling Company and in February 2012, it acquired bottling operations in Vietnam and Cambodia from Coca-Cola Sabco Limited (Sabco). In June 2012, Coca-Cola acquired bottling operations in Guatemala.

Our Recommendation

We currently have Neutral recommendation on both The Coca-Cola Company and Coca-Cola FEMSA. Both the stocks carry a Zacks#3 Rank (short term ‘Hold’ rating).

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