The Coca-Cola Company (KO - Free Report) announced its plans to divest nine production plants to three of its independent bottlers in order to lower costs, streamline production system and generate higher returns on investments.
Coca-Cola signed letters of intent with three independent bottlers — Coca-Cola Bottling Co. Consolidated (Consolidated), Coca-Cola Bottling Company United (United) and Swire Coca-Cola USA (Swire) to form a nationwide supply group, National Product Supply System (NPSS) along with its owned bottler, Coca-Cola Refreshments (CCR) and its operating segment in North America. Coca-Cola took over CCR in 2010 when it acquired the North American operations of Coca-Cola Enterprises, Inc. .
Also, as part of the transaction, the three independent bottlers will buy nine production facilities valued at about $380 million from CCR.
The deals are subject to the companies reaching a definitive agreement. The group will work on infrastructure and innovation planning, sourcing and cost controls. The NPSS bottlers would represent 95% of the U.S. volume.
Consolidated will buy facilities in Virginia, Maryland, Indiana and Ohio; United will acquire plants in New Orleans while Swire will buy the Arizona and Colorado facilities. These facilities will be transferred between 2016 and 2018. Sale of the production plants will lower Coca-Cola’s capital base which can result in higher returns.
Coca-Cola is re-franchising the majority of its company-owned North American bottling territories to create a more efficient U.S. operating model. It closed several transactions in 2014 and plans to complete two-thirds of the re-franchising by the end of 2017 which should improve margins and drive growth.
Coca-Cola is undergoing several changes – which includes the re-franchising of bottling territories – to improve growth prospects.
In Oct 2014, Coca-Cola unveiled strategic actions to drive profit growth. Other than aggressively cutting costs, the plan includes making disciplined brand and growth investments as well as aligning incentive plans.
Moreover, the Zacks Rank #3 (Hold) company is buying stakes in growing companies to boost the key categories. Coca-Cola owns 16% stake in specialty coffee retailer Keurig Green Mountain, Inc. and 16.7% in energy drink maker, Monster Beverage Corporation (MNST - Free Report) .
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