The Coca-Cola Company (KO - Free Report) plans to buy Anheuser-Busch InBev's (“ABI”) stake in Coca-Cola’s largest African bottler – Coca-Cola Beverages Africa (“CCBA”). This closely follows the acquisition of SABMiller by ABI on Oct 10.
Coca-Cola exercised its right to buy the African bottler under a change-of-control clause as it plans to execute its long-term strategy in these markets in collaboration with others. Coca-Cola also plans to negotiate the terms of the buyout with ABI and discuss the refranchising of CCBA with the other partners.
As per Coca-Cola officials, "While the company respects ABI’s capabilities, it has a number of existing partners who are highly qualified and interested in these bottling territories.”
Coca-Cola is also negotiating with potential buyers who might buy partial or all of SABMiller’s interest in CCBA. It is worth mentioning that Coca-Cola had established CCBA in 2014 in collaboration with SABMiller and South Africa-based bottling partner Gutsche Family Investments.
Although Coca-Cola has decided to exercise the change-of-control clause for CCBA, ABI will retain some interest in the bottling arm. ABI's acquisition of SABMiller lent it a 20% stake in Castel Group of France, which bottles Coke products in more than a dozen African countries. ABI also has SABMiller's interest in Coke’s bottling businesses in El Salvador and Honduras, yet, those agreements would be handled separately at a later date, as per the Coke spokesman.
Coke’s “asset light’’ Strategy
Coca-Cola has been selling manufacturing and distribution assets all over the world as part of its “asset light’’ strategy in order to focus on more profitable core businesses when soda consumption is slowing down.
In many international markets, Coca-Cola has been divesting and merging many bottling operations since 2014 to revamp its bottling system and thereby improve margins and drive growth. 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. (CCE - Free Report) in May this year.
Apart from international markets, Coca-Cola is refranchising the majority of its company-owned North American bottling territories to existing as well as new bottlers in order to create a more efficient system. Over 65% of the U.S. territories have already been transferred or agreed to be refranchised so far. The company plans to refranchise all of its company-owned North American bottling territories by the end of 2017.
Zacks Rank & Key Picks
Currently, Coca-Cola has a Zacks Rank #4 (Sell).
Better-ranked beverage stocks include Primo Water Corporation (PRMW - Free Report) and Pepsico, Inc. (PEP - Free Report) .
Primo Water is expected to witness a 140% rise in 2016 earnings. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
For Pepsico, full-year 2016 earnings growth is expected at 5% and the stock carries a Zanks Rank #2 (Buy).
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