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Coke buys bottler to boost its sales
Time: 2007-01-01
City: Shanghai
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COCA-COLA Co, the world's largest soft-drink maker, will buy San Miguel Corp's 65 percent stake in a Philippine bottler for US$590 million in an attempt to reverse falling sales there.
The agreement gives Coca-Cola full control of Coca-Cola Bottlers Philippines Inc, one of the company's 10 biggest soda distributors.
Manila-based San Miguel, the largest food and beverage company in the Philippines, disclosed the sale price in a statement at the weekend, Bloomberg News reported.
Coca-Cola said it's selling less soda in the Philippines because of higher prices and poor supply and distribution. Volume declined in the "low double digits" on a percentage basis in the third quarter and dropped last year. Coca-Cola in October said it expects the Philippines to "remain weak."
"If they can improve operations and improve the margins and implement a better strategy in the Philippines, they can probably have a great deal of success," said Michael Morcos, who helps manage US$1.1 billion, including Coca-Cola shares, at Old Second Wealth Management in Aurora, Illinois. "These emerging markets are playing a bigger role in Coke's global picture."
Shares of Atlanta-based Coca-Cola fell 29 cents to US$48.25 at 4pm on Friday in New York Stock Exchange trading. They gained 20 percent last year, the best annual performance since 1997.
San Miguel's Class B shares, which allow overseas investors to own the company, rose 2.50 pesos, or 3.3 percent, to 77.50 (US$1.58), before the announcement. That was the biggest gain in more than two months.
Coca-Cola already owns 35 percent of the Philippines joint venture, which makes more than two-thirds of soft drinks sold in the country.
In 2001, Coca-Cola and San Miguel jointly bought the bottler from Coca-Cola Amatil Inc for US$1.2 billion in cash, debt and stock. Coca-Cola spokesman Dana Bolden declined to say if the latest purchase, which puts a US$907 million value on the venture, included assumption of debt.
Coca-Cola confirmed the price on Friday in a filing with the United States Securities and Exchange Commission.
The acquisition will probably hurt Coca-Cola's bottling profit in the short term because Philippine volume may have dropped 12 percent or more in 2006, said UBS Securities analyst Kaumil Gajrawala.
Longer term, it gives Coca-Cola "the opportunity to turn around the business by stepping up investments that had been lacking," New York-based Gajrawala said. He rates the stock a "buy."
San Miguel said it was selling the stake to give itself "longer term commercial flexibility."
The company's sales fell four percent to 27.4 billion pesos (US$556 million) in the first nine months. Coca-Cola said in October the Philippines was one of three areas where its volume fell during the third quarter.
Under the agreement, San Miguel agreed not to produce non-alcoholic drinks in the Philippines for five years and overseas for three years.
The purchase is subject to an audit and San Miguel's compliance with an 18-month transition agreement, San Miguel said.
San Miguel is giving up a franchise it's held for most of the last 80 years. In 1927 San Miguel was granted the first non-US national Coca-Cola bottling and distribution franchise for the Philippines.
By Mary Jane Credeur