Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis

Conclusion

The consumer market for beverages is rapidly evolving. Major beverage companies must adapt to this changing business model in order to stay ahead of the competition and continue to grow profits. Companies like Coca-Cola and PepsiCo continue to buy up rival beverage brands, and now they have begun a period of vertical integration. This trend involves acquiring bottling partners’ operations around the world, but starting in North America first. Coca-Cola’s acquisition of substantial assets from CCE was accomplished at a price which included no market premium. Coke expects synergies of $350 million or more in a deal valued at $12.3 billion. The value the firm has obtained in this acquisition and subsequent reorganization of its North American unit, has already begun to become clear. While the industry climate continues to hit beverage makers with increasing costs and shifting demand patterns, Coca-Cola is taking strides through M&A activity to effect long-term top and bottom-line growth. The Coke/CCE acquisition goes straight to the core of Coca-Cola’s broader market strategy that puts heavy importance on continued rapid M&A. This strategy will help Coca-Cola continue to be the world leader in beverages.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)

While specific figures regarding these synergies have not been made public, benchmarking PepsiCo’s success with the acquisition of its bottling partners is not difficult. As the bottling business is naturally less profitable than that of selling syrups, it is natural to expect PepsiCo’s gross margin percentage to head lower post-merger. This reality is taken into account with a reminder that the macroeconomic trend in North America is decreasing carbonated beverage consumption per capita. Further, PepsiCo issued millions of new shares of common stock when it acquired its two largest bottling partners. Despite these factors, which have all negatively impacted the company’s earnings per share (EPS), PepsiCo’s third-quarter 2010 EPS came to $1.19, up 10 cents from the prior year quarter, which was also prior to the M&A activity.[ Alazraki, Melly. "PepsiCo Earnings, Revenue Rise on Bottlers Acquisition." DailyFinance. 7 Oct. 2010. Web. 01 May 2011. http://www.dailyfinance.com/2010/10/07/pepsico-earnings-revenue-rise-on-bottlers-acquisition/ .] This suggests that at least some synergies were recognized right away from the first-quarter 2010 mergers, and it’s those cost reductions which fought the negative headwinds facing PepsiCo. The result is significantly higher EPS. Without specific synergy figures from the company, a bit of deduction suggests that PepsiCo’s CEO Nooyi is telling the truth, and that significant cost savings from the merger are unfolding. This relationship translates to Coca-Cola’s acquisition of CCE, as the transactions almost mirror one another. The likelihood of Coca-Cola realizing significant cost savings, and therefore bottom-line growth, from its acquisition of CCE’s North American operations is a virtual certainty.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success

Implementation Analysis: Likelihood of Acquisition Success

The Coca-Cola/CCE acquisition came to agreement roughly a year ago, with closure of the deal about two quarters ago. The company has not let on yet about synergies realized from the transaction. Therefore, an analysis of the results from PepsiCo’s M&A deal with Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) may be a solid indicator of what Coca-Cola should expect. PepsiCo’s deal occurred roughly a year earlier, with agreement coming on August 4, 2009, and closure on February 26, 2010 after shareholders of both PBG and PAS completed shareholder elections of the form of consideration most desired.[ "PepsiCo Announces Final Results of Elections Regarding Merger Consideration for Bottler Acquisitions." PepsiCo. 2 Mar. 2010. Web. 01 May 2011. http://www.pepsico.com/PressRelease/PepsiCo-Announces-Final-Results-of-Elections-Regarding-Merger-Consideration-for-03022010.html .] As it turned out, all PBG and PAS shareholders who elected to receive cash in lieu of any consideration of PepsiCo stock had their desire met. The rest of PBG and PAS shareholders received roughly 50% of the value of their shares in cash and the other 50% in shares of PepsiCo stock.

According to a publication called “Daily Finance,” an interpretation of PepsiCo’s third-quarter 2010 financial results reads as follows: “The American beverage business saw volume, net revenue and operating profit results driven by the favorable impact of the bottling acquisitions, synergies and improving sequential organic volume trends across the product portfolio in North America.”[ Alazraki, Melly. "PepsiCo Earnings, Revenue Rise on Bottlers Acquisition." DailyFinance. 7 Oct. 2010. Web. 01 May 2011. http://www.dailyfinance.com/2010/10/07/pepsico-earnings-revenue-rise-on-bottlers-acquisition/ .] This assessment was made more firm when Indra Nooyi, PepsiCo CEO, said during the company’s first-quarter 2011 earnings call, “We hit the first anniversary of the bottler acquisitions in the first-quarter, and the synergies are ahead of original estimates. We have made the operational organization changes necessary to realize the cost synergies, and we're beginning to realize the revenue synergies now.”[ "PepsiCo's CEO Discusses Q1 2011 Results - Earnings Call Transcript." Seeking Alpha. 28 Apr. 2011. Web. 01 May 2011. http://seekingalpha.com/article/266334-pepsico-s-ceo-discusses-q1-2011-results-earnings-call-transcript .] From these short-term assessments, it appears that Coca-Cola should expect exceptional cost synergies to emerge, especially around or after the one-year anniversary of the deal completion.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction

Regulatory and Shareholder Approval of the Transaction

From a regulatory perspective, this M&A deal almost exactly mirrors the 2009 transaction whereby PepsiCo acquired its two largest bottling partners. In that deal, both Pepsi Bottling Group and PepsiAmericas had existing bottling and distribution agreements with the Dr. Pepper Snapple Group for certain beverage products. Coincidentally, the same agreement exists between Dr. Pepper and CCE in which the latter bottles and distributes the former’s products throughout various North American geographic segments. In an identical decision, the Federal Trade Commission has decreed that the Coke/CCE deal may only come to fruition if the former sets up an information “firewall” that would prevent certain Coca-Cola employees from gaining access to competitive information that Dr. Pepper has shared with CCE under its existing bottling agreement.[ "FTC Puts Conditions on Coca-Cola's $12.3 Billion Acquisition of Its Largest North American Bottler." Federal Trade Commission. 27 Sept. 2010. Web. 29 Apr. 2011. http://www.ftc.gov/opa/2010/09/coke.shtm .] This position by the FTC is intended to prevent the release of Dr. Pepper’s proprietary business information and therefore eliminate potential conflicts of interest inherent to the business landscape.

In one final regulatory move, the Canadian Competition Bureau approved this acquisition in the fall of 2010.[ "Coca-Cola - Press Center - Press Kits - Regulatory Clearance For CCE Acquisition." Coca-Cola: The Coca-Cola Company. 27 Sept. 2010. Web. 29 Apr. 2011. http://www.thecoca-colacompany.com/dynamic/press_center/2010/09/the-coca-cola-company-obtains-regulatory-clearance-for-acquisition-of-cces-north-american-business.html .] As CCE engages in limited bottling and distribution activities in Canada, this approval was necessary before a complete acquisition could be made by Coca-Cola. Separately, the final seal of approval on the deal comes from current CCE shareholders, whose investment position is likely to alter significantly if the acquisition goes through as planned. The new CCE they will be shareholders of will focus almost exclusively on bottling and distribution of Coca-Cola products in Europe. This focus will be enhanced by CCE’s counter-acquisition of Coke’s Swedish and Norwegian bottling operations, and the later option of purchasing Coke’s German bottling operations at fair value, a major discount from what an outside party would have to pay. Regarding approval of the entire deal, CCE shareholders were scheduled to have a vote on the morning of October 1st, 2010. According to a CCE announcement, enough shareholders approved the acquisition, and execution of the deal is to begin immediately.[ Geller, Martinne, and Brad Dorfman. "Coke Enterprises' Shareholders Approve Coke Deal." Reuters.com. 01 Oct. 2010. Web. 29 Apr. 2011. http://www.reuters.com/article/2010/10/01/us-cocacolaenterprises-idUSTRE6903E720101001 .]

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players

Major Legal and Financial Players in the M&A Deal

Exhibit 8[ "The Coca-Cola Company and Coca-Cola Enterprises Strategically Advance and Strengthen Their Partnership." Business Wire. 25 Feb. 2010. Web. 29 Apr. 2011. http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view .] presents a schedule of firms that were involved in the Coca-Cola/CCE acquisition transaction. Interested parties include law firms, investment banking firms, a consulting firm, and several other players including the Federal Trade Commission and the shareholders of the acquired company, CCE. Coca-Cola has used law firm Skadden, Arps, Slate, Meagher & Flom for M&A legal services several times in the past, including Coke’s 2007 acquisition of Energy Brands, the owner of Glaceau, the maker of VitaminWater.[ "Skadden Represents Coca-Cola in Its Acquisition of Glaceau." Skadden. May 2007. Web. 29 Apr. 2011. http://www.skadden.com/Index.cfm?contentID=42 .] Other Coke acquisitions Skadden advised on include the company’s initial equity stake in Honest Tea, and the company’s busted $2.4 billion bid for Chinese juice maker Huiyuan Juice Group, Ltd.[ Lee, Lisa, and Amy Wu. "Skadden Breaks out the Bubbly." The Deal LLC. 12 Sept. 2008. Web. 29 Apr. 2011. http://www.thedeal.com/magazine/ID/019462/dealmakers/deal-diary.php .]

Also of note in this deal was CCE’s employment of law firm McKenna Long & Aldridge and consultant Greenhill & Company to interact directly with the company’s Special Committee to the Board of Directors regarding the deal. By involving separate firms to deal with a special committee, CCE was able to avoid most conflicts of interest with senior company management that could have arisen. This practice is commendable and indicative of due diligence on the part of both beverage companies.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola Acquisition of CCE North America: Deal Structure (2)

For Coca-Cola, gaining the type of cash flow and synergies that CCE North America brings came at a cheap price. To pay fair value for such a large business, with assets of $12.3 billion, is a phenomenal deal for Coke. Within Coca-Cola, a major reorganization has begun that will combine the acquired assets from CCE with other company segments to create a new, overarching business segment known as Coca-Cola Refreshments (CCR). This unit will be lead by the former President of the North American business unit with CCE, Steve Cahillane.[ "The Coca-Cola Company Finalizes Transaction with Coca-Cola Enterprises." Reuters.com. 3 Oct. 2010. Web. 4 May 2011. http://www.reuters.com/article/2010/10/03/idUS44374+03-Oct-2010+BW20101003 .] Accordingly, his expertise with the business should prove invaluable to Coca-Cola in bringing the unit in-house. The new CCR unit at Coca-Cola will be a combination of: “(1) CCE North America; (2) CCNA (Coca-Cola North America) Foodservice; (3) the Minute Maid and Odwalla juice businesses, (4) CCNA Supply Chain Operations, and (5) the Company-owned bottling operations in Philadelphia.”[ Ibid. ]

Whether the Coca-Cola/CCE deal will ultimately prove a fruitful endeavor for Coke is no question. By cutting out a layer of management and eliminating the entire CCE shareholder base from equity interest in the North American segment, Coca-Cola will undoubtedly realize massive synergies. Being such a recent deal, it is difficult to determine the types of synergies that Coke is seeing so far. As it turns out, Coca-Cola’s 2011 first quarter earnings report was released on April 26th, 2011, and indicates positive results for the acquisition so far. The company’s net revenue jumped 40%[ "2011 First Quarter Results." Coca-Cola: The Coca-Cola Company. 26 Apr. 2011. Web. 04 May 2011. http://www.thecoca-colacompany.com/dynamic/press_center/2011/04/2011-first-quarter-financial-results.html .] from the comparable period last year, giving clear indication as to the magnitude of this acquisition. The company says in its report, “Coca-Cola Refreshments (CCR) integration efforts are on plan, with expected 2011 net cost synergies of $140 to $150 million.”[ Ibid. ] Of the estimated $350 million in total synergies over four years, this is clearly a solid start to the first year of combined operations. The long-term success of the deal is a matter for further discussion, and is given consideration later on in this paper.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola Acquisition of CCE North America: Deal Structure

Coca-Cola’s Acquisition of CCE’s North American Operations

Deal Structure

The structure of the Coca-Cola/CCE deal follows in Exhibit 7. Coca-Cola will be relinquishing its 34% equity stake in CCE, valued at $3.4 billion approximately. Coca-Cola, in a position against the industry trend, owns a few bottling operations overseas. The company will offer the Norwegian and Swedish operations over to CCE, and an option for CCE to acquire an 83% stake in the major German bottling unit for fair value in 18-36 months post-deal closure. In exchange, CCE will be giving Coca-Cola all of its North American bottling operations, valued at roughly $3.4 billion, as well as $822 million in cash. There were no competing bids in this transaction, as no outside parties were aware the deal was in progress. Given the industry trend toward bottler consolidation, analysts surely might have expected this acquisition, though no other bidders were involved in the deal-making process.

The deal is largely thought to be at fair value. Exhibit 7 shows the equal valuations of CCE’s North American operations and Coke’s equity stake in the company, at $3.4 billion. Coca-Cola has also indicated the swap of $822 million for Coke’s Norway and Sweden bottling operations to be an equivalent component. The basis for this fair value swap lies in the relationship between the companies that has precipitated over the many years of both companies’ history. CCE realizes that virtually all of its success has been at the hand of Coca-Cola. Coke has helped the company merge with smaller bottling partners, and has continued to maintain franchising agreements with CCE that shareholders perceive as being very fair. As such, CCE would not have allowed a competitive bidding process to emerge for its North American unit. At the same time, a practical look at the deal points out that Coca-Cola could in the future refuse to renew the franchising contract with CCE. Should that happen, Coca-Cola would surely endure a massive blow to revenue, but with almost 200[ "About Us: Our Heritage: CCE Timeline: The Evolution of Coca-Cola Bottling and CCE." Coca-Cola Enterprises. Web. 29 Apr. 2011. http://www.cokecce.com/pages/allContent.asp?page_id=88 .] other independent bottling partners in the US alone, it’s likely the company could make up production elsewhere given time. CCE on the other hand, with no franchising contract with Coca-Cola, would face a complete shutdown and possible bankruptcy. Coca-Cola’s franchising model holds all the leverage, meaning that CCE really didn’t have much choice in this matter. Coke decided it was time to streamline operations by acquiring the bottler’s operations in the US and Canada, and CCE, wanting to maintain goodwill with the company, agreed to become entirely Europe-focused with the addition of two small bottling units in Norway and Sweden.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola M&A Activity: Other Beverage Industry M&A Activity

Other Beverage Industry M&A Analysis

Exhibit 6 features an array of nine beverage industry M&A deals ranging from 2003 to 2011. This spread covers beverage companies that sell soda, juice, sports drinks, coffee, tea, bottled water, liquor, and beer. The principal objective of each acquiring company is outlined. A central theme to this compendium of deals is the goal of companies to access new markets or gain market share. In some cases this involves acquiring another brand. In the cases of Cadbury Schweppes, InBev, and Starbucks, the “buy-a-brand” model is apparent. In the cases of Cott Corp. and the Mark T. Wendell Tea Co., the objective varies slightly with generating operational efficiencies at the forefront of the deal. This divison of objectives is clearly indicative of the greater beverage industry trend duopoly previously presented, which includes brand acquisition and operational streamlining. This pattern of behavior is exactly the market strategy that both Coca-Cola and PepsiCo have employed over the last decade to enhance shareholder value.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)

Exhibit 4: Quick View of Two PepsiCo M&A Deals

Undoubtedly the most pertinent transaction of PepsiCo’s M&A activity is the company’s merger with its two largest bottling partners in late 2009, early 2010. PepsiCo’s consideration for both companies was targeted for 50% cash and 50% PepsiCo common stock. Expected pre-tax synergies of $300 million were expected to be realized by 2012.[ "PepsiCo Reaches Merger Agreements with Pepsi Bottling Group and PepsiAmericas." PepsiCo. 4 Aug. 2009. Web. 01 May 2011. http://www.pepsico.com/PressRelease/PepsiCo-Reaches-Merger-Agreements-with-Pepsi-Bottling-Group-and-PepsiAmericas08042009.html .] Total PepsiCo consideration for both companies was valued at $7.8 billion. PepsiCo CEO Nooyi, in selling the proposed acquisition to stakeholders, summarized the industry condition well:

“While the existing model has served the system very well, it is clear that the changing dynamics of the North American liquid refreshment beverage business demand that we create a more flexible, efficient and competitive system that can drive growth across the full range of PepsiCo beverage brands. Our shared culture, strong operational leadership and ability to successfully integrate operations - in this case operations we know very well - should allow us to bring the businesses together quickly and seamlessly.”[ Ibid.]

The selling point of this deal to regulators was the apparent quick, seamless integration of the businesses resulting from PepsiCo’s industry expertise. The estimated synergies are expected to help keep costs low to consumers. To shareholders, the company claims this M&A deal will accelerate company growth going forward. What this deal gets reduced to is the simple realization that with no more licensing with bottling partners, there will be no more reduced royalties coming in. The realized synergies will simply boost cash flow by cutting out a middleman. This extra cash flow will let PepsiCo invest in other companies and products, and effectively accelerate the growth of the firm. Exhibit 5 presents a summary of the two bottling companies.[ Ibid. ] Specific benefits PepsiCo says the merger of a bottling company and its bottling partners creates include:

“Consolidation of 80 percent of the North American beverage volume will speed the decision-making process and eliminate friction points
Offering more compelling bundles across food and beverage and providing enhanced customer service nationally, taking the "Power of One" to the next level
Consolidation of manufacturing networks will provide cost benefits and also optimize our investments in growth and innovation
Greater flexibility in deploying multiple go-to-market systems to tailor distribution by channel
Elimination of redundant costs to leverage scale efficiencies”[ Ibid.]

The 80% figure is specific to PepsiCo’s bottlers, but not far off from Coke’s 90%-plus figure. When PepsiCo acquires these companies, the same way Coke purchases CCE as will later become apparent, the financial consideration is entirely cash and stock. As such, no financing contingencies exist that might prevent the deal from coming to fruition. On the contrary, the deal will require regulatory approval as well as a signoff by both bottling companies’ shareholders.

Federal Trade Commission (FTC) regulators came back to Pepsi with conditions identical to what Coca-Cola ultimately agreed to abide by in its acquisition of CCE. PBG and PAS both bottling products for Dr. Pepper Snapple Group, a smaller competitor to both Coke and PepsiCo. The FTC complaint reads: “The FTC’s proposed consent order is designed to remedy these potential problems by requiring PepsiCo to set up a “firewall” so that the sensitive information cannot be accessed by anyone at PepsiCo who may be in an position to use the information against Dr Pepper Snapple.”[ "FTC Puts Conditions on PepsiCo's $7.8 Billion Acquisition of Two Largest Bottlers and Distributors." Federal Trade Commission. 26 Feb. 2010. Web. 01 May 2011. http://www.ftc.gov/opa/2010/02/pepsi.shtm .] Compliant with these terms, PepsiCo closed its acquisitions in February 2010.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)

PepsiCo Chairman and CEO Indra Nooyi accurately recaps the changing industry dynamics which have resulted in the two major beverage company business model trends previously identified:

“Our operating environment has changed dramatically in the last decade. Retailers have continued to consolidate. New companies have emerged. And non-carbonated drinks, which have different economics and different distribution systems than carbonated soft drinks, have become a much bigger factor in the industry and in our own portfolio.”[ Platt, Gordon. "Pepsi Puts Some Fizz Back in M&A Market." Global Finance Magazine. June 2009. Web. 1 May 2011. http://www.gfmag.com/archives/100-june-2009/1833-regulars-finance-mergers-a-acquisitions.html#axzz1Kqmf5N9W .]

Exhibit 3 highlights significant M&A activity for PepsiCo between 1998 and 2010. The major industry trends, brand acquisition and vertical integration, are immediately apparent in this list. PepsiCo bought the Tropicana and Gatorade[ Chazan, Guy. "Pepsi to Buy Wimm-Bill-Dann of Russia for $5.8 Billion." The Wall Street Journal. 3 Dec. 2010. Web. 01 May 2011. http://online.wsj.com/article/SB10001424052748703377504575650252777195806.html .] brands to enhance the company’s variety of beverage offerings. On the other hand, PepsiCo’s acquisitions of Pepsi Bottling Group (PBG) and PepsiAmericas (PAS) were pursued strictly with operational efficiency in mind.

For many smaller players in the beverage industry, M&A means acquiring other small companies and achieving both gains in market share and streamlined operations. At the world’s largest beverage companies like Coca-Cola and PepsiCo, M&A activities tend to focus on one goal or the other. For example, PBG and PAS are in the business of bottling and distributing beverages only, with no actual brand ownership to their names. Conversely, PepsiCo’s acquisition of South Beach Beverage Company was designed to offer customers all across the country a healthy alternative-type beverage under the umbrella of Pepsi’s already highly efficient system of franchising with bottlers. In this way, the largest beverage companies of today are pursuing very focused M&A deals with narrow goals in mind.

Exhibit 4 presents abridged details of two PepsiCo M&A deals featured in Exhibit 3, Wimm-Bill-Dann (2010)[ Ibid. ] and Quaker Oats (2001).[ "Pepsi Buys Quaker in $13.4B Stock Deal." ABC News. 4 Dec. 2001. Web. 01 May 2011. http://abcnews.go.com/Business/story?id=88989 .] Of these acquisitions, Tom Pirko, CEO of beverage company consulting firm Bevmark, says “Pepsico is building a formidable package of leading brands.”[ Ibid. ] These are just a few of PepsiCo’s many M&A deals over the last decade, but they highlight the company’s participation in the beverage industry’s overall trends.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola M&A Activity: Company Portfolio Analysis (3)

After PepsiCo acquired its two largest bottling and distribution partners in late 2009 and early 2010, Coca-Cola seized an opportunity with Coca-Cola Enterprises (CCE). CCE, as one of Coke’s largest and oldest bottling partners worldwide maintained substantial capital-intensive operations in the North American market. The landscape of the beverage industry has changed in recent years to reflect updated consumer preferences and the reality that most markets worldwide are saturated with a variety of beverage companies. This verity has resulted in lucrative financial opportunities to be found in the acquisition of bottling partners. This second major trend of the industry is the one Coca-Cola embraced in 2010 with its acquisition of substantially all of CCE’s home-market activities. The way Coke has addressed these industry trends has proven the company a formidable global foe that is becoming increasingly better poised for future profitability and market dominance.

An M&A deal worth noting, but that did not come to fruition, was Coca-Cola’s failed 2009 bid to takeover Chinese juice maker Huiyuan. Huiyuan, one of China’s largest juice makers and sellers in the country’s fastest growing beverage segment, had agreed to sell itself to Coca-Cola for approximately $2.4 billion.[ Buckley, Chris. "China Says Rejection of Coke-Huiyuan Deal No Blow to Open Trade."Reuters.com. 19 Mar. 2009. Web. 29 Apr. 2011. http://www.reuters.com/article/2009/03/19/us-cocacola-huiyuan-china-idUSTRE52I27120090319 .] The deal was agreed upon after months of due diligence, market research, and negotiations between the companies. Ultimately, however, it was struck down by Chinese regulators who claimed the deal would have given Coke a virtual monopoly on the beverage industry in China. There is wide speculation that other political forces were to blame for the deal turning sour, and that market dynamics were only lightly considered.

The significance of this failed transaction is that Coca-Cola followed its “buy the brand” strategy in line with the major industry trend of simply acquiring solid brands that have already been established, rather than build out a new product line. The company followed every step appropriately, and reached a deal to access a large portion of the Chinese beverage market. The deciding factor in this case became a nationalistic government flexing its political muscle, and the deal failed at little or no fault of Coca-Cola’s. While the beverage industry’s dominant trends are generally positive steps for beverage makers to improve bottom-line and top-line growth, there is a pitfall in the strategy in that deals do not always close. Political forces present a major risk to multinational food and beverage companies like Coca-Cola and PepsiCo going forward as a result.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola M&A Activity: Company Portfolio Analysis (2)

Other major considerations are less strategic and more practical in nature. First, Coke must identify the short-term integration issues the company might face in an acquisition scenario. Generally Coke has left businesses alone to function as if the takeover didn’t occur, and simply institutes usage of the company’s vast global supply chain to distribute the new products. On this note, national culture is also important to consider, given the variety of products that beverage companies make and the diversity of international customs and cultures. As Coca-Cola enhances a newly purchased brand with its distribution network, the issue of culture clash becomes a long-term consideration. For example, Coca-Cola and PepsiCo do not own any alcoholic beverage brands, generally ensuring that all their beverage products will be consumable in markets across the world, regardless of expected demand for those goods. Finally, company culture at an acquisition target is worth observing. In the case of Honest Tea, Coca-Cola appreciate that part of the brand’s equity was derived from the founder’s commitment to sourcing from approved locations that met certain sustainability and ethical standards. Accordingly, Honest Tea continues to thrive under the umbrella of Coke ownership because the company’s founder was allowed to continue running it, and ensuring that commitment to excellence does not waver. Of all the considerations Coca-Cola makes when assessing takeover targets, perhaps mass product appeal is the most important.


The decade 2000 to 2010 featured mostly non-carbonated drink company acquisitions by Coca-Cola. In 2001 the company recognized the upside of the healthy juice drink market in the North American region, and bought up Odwalla accordingly.[ "The Coca-Cola Company." Wikipedia, the Free Encyclopedia. Web. 29 Apr. 2011. http://en.wikipedia.org/wiki/The_Coca-Cola_Company .] Later on in 2007, Coke acquired both Energy Brands (owner of Glaceau, maker of VitaminWater) and Fuze Beverage in the same year. Both companies make what are known in the industry as “enhanced water drinks.” Fuze sells a fruity-flavored water while Energy Brands’s division making VitaminWater features flavored water products that have vitamins added. Both companies were marketing their products as healthy alternatives to sugary cola drinks, and when their sales began to explode, Coke decided the brands were must-haves. In a similar fashion, the company made a partial equity investment in Honest Tea in 2007 and later acquired the rest of the company in early 2011. What Coca-Cola gained in all three of these brand acquisitions was unparalleled access to the fast-growing health drinks segment of the consumer beverage market.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola M&A Activity: Company Portfolio Analysis

Coca-Cola M&A Portfolio Analysis

The array of M&A activity presented in Exhibit 2 below showcases the company’s answer to the constantly changing beverage landscape. With some deals aimed at expanding market share and others designed to create operational synergies, the company has embraced a model of expansion that is well suited to today’s largely saturated global beverage markets. Coca-Cola’s equity takeover of both Inca Kola in Peru and Thums Up in India resulted from the company’s desire to expand revenue figures in those countries. Each of these brands was home to its country and held the majority of market share as such. Coca-Cola’s answer to slow growth of its signature brands in these emerging markets led it to the decision to acquire each brand in the mid-1990s. These investments represent the first major beverage industry trend, growing market share and brand recognition worldwide, through the acquisition of successful brands. The company’s 1995 acquisition of the Barq’s root beer brand is another example of this. What all three of these transactions have in common, however, is they’re soda brands. The late 1990s still featured growing soft drink consumption in the North American market. As the decade turned, so did consumer preferences in the United States.

In identifying a potential acquisition target, Coca-Cola considers a variety of factors. The first and foremost considerations are the strength of a company’s brand and financial situation. In order to even be considered for takeover, a beverage company must fill a market void that Coca-Cola has for some reason been unable to master as of yet. Both Coke and PepsiCo have in recent years been acquiring juice makers in foreign countries. As the middle class in foreign countries swells and consumers look for alternatives to sugary soft drinks, the juice market worldwide is going to continue to boom. In Russia and China, neither company has been able to establish a juice brand with any real success. This explains the move to acquire these companies in those markets.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola M&A Activity: Company Strategic Objectives (2)

During several points over the company’s century-plus long history, the need has arisen to reorganize the system of franchisees. Essentially, as international demand for Coke products grew, so did the number of bottling partners Coke did business with. Most recently, the company encouraged bottlers to combine during the 1980s, and Coca-Cola successfully narrowed its network of roughly 400 independent partners down to just 180 franchise ownerships.[ Ibid.] This is how the company has managed overhead expenses in the past, and ended up with massive worldwide bottling partners as a result. Take CCE, for example, which in 2006 distributed approximately 2 billion cases of product to retail locations in a half-dozen countries, including 46 US states.[ Ibid. ] The franchise model has been Coke’s lifeline for more than a century as it has allowed expansion of many products into emerging markets without serious capital commitment.

While bottling partner consolidation will continue to happen on its own, the prospect of reducing overhead via this tactic faces limited prospect at this time. Coca-Cola and PepsiCo both have realized that the inability to make bottling partners more efficient can be overcome by acquiring those partners. By acquiring bottling partners, the world’s largest beverage companies can eliminate a layer of management and an entire set of profit-hungry shareholders at the same time. In this way, Coca-Cola hopes to maintain its status as the largest beverage company in the world by consumption.
Figure 3[ Ibid.]

Figure 3 illustrates the market penetration that CCE has accomplished. Coca-Cola’s acquisition of CCE’s North American operations will result in the transfer of all the market share seen below. On the contrary, the new CCE, which will be focused solely on distribution in Europe, will gain operations in Norway, Sweden, and eventually Germany (under an option exercisable 18-36 months post-acquisition), as an updated market map on the new CCE website reveals (Figure 4).

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola M&A Activity: Company Strategic Objectives

Strategic Objectives of Coca-Cola’s M&A Activity

The basis for these overwhelming beverage industry trends lies in the desire for top-line and bottom-line growth. Aimed at meeting this goal, Coca-Cola has developed what it calls a “2020 Vision.” The premise of this vision is to bring together beverage companies and partners in a way that will behave as “an aligned system.”[ "The Coca-Cola Company Provides Roadmap for Achieving 2020 Vision at Analyst and Investor Event." Coca-Cola: The Coca-Cola Company. 16 Nov. 2009. Web. 04 May 2011. http://www.thecoca-colacompany.com/presscenter/nr_20091116_2020_vision.html .] This is most easily understood as vertical integration. Referring back to Figure 1, major companies in the beverage industry fit a standard model for getting products to market. In order to “align” the members of this supply chain, Coca-Cola is acquiring both brands and bottling partners. Typically both the bottling and distribution functions are performed jointly at a franchise partner’s facility. By controlling more functions up and down the company’s business model, Coke will be able to cut costs and reduce the amount of profit lost to intermediaries.

Figure 2 illustrates the role that Coca-Cola Enterprises (CCE) plays in the business model that Coca-Cola uses in getting products to market. Coca-Cola itself is responsible for producing the syrups for its branded sodas. By producing the concentrates in-house, Coke is able to safeguard the secrecy of the recipes it uses. Those syrup concentrates are forwarded to CCE, which uses capital intensive factories to combine the syrups with carbonated and non-carbonated water, depending on the beverage. The finalized drinks get filled into bottles and then bulk packaged for transport to retail outlets where consumers obtain the drinks. CCE’s responsibility is to mix, bottle, and deliver the beverages to the end consumer. The far right portion of the graphic recognizes the various methods by which consumers obtain the beverage. Vending machines, grocery stores, gas stations, and restaurants are just a few of the many places that Coca-Cola beverages are available on a worldwide basis.


Figure 2[ "Our Business at a Glance." Coca-Cola Enterprises. 2007. Web. 29 Apr. 2011. http://www.cokecce.com/brochures/cce_2005/02_atglance.html .]

Traditionally, Coca-Cola has always taken care of the ingredient sourcing and syrup manufacturing processes. This has let the company outsource the capital intensive portion of operations to franchisees. These bottling companies earn a significant portion of the markup that gets added as the product travels from concentrate to the dinner table. Coca-Cola Classic began as a fountain beverage in 1886, and wasn’t first bottled until 1894.[ "About Us: Our Heritage: CCE Timeline: The Evolution of Coca-Cola Bottling and CCE." Coca-Cola Enterprises. Web. 29 Apr. 2011. http://www.cokecce.com/pages/allContent.asp?page_id=88 .] It was in 1899 that two entrepreneurs, Benjamin Thomas and Joseph Whitehead, presented the Coca-Cola leadership with a plan to sell the beverage in bottles all across the country. Seeing limited prospect of successfully selling the product outside of Georgia and neighboring states, Coca-Cola granted the men exclusive rights to sell the bottled beverage across the US for just one dollar.[ Ibid.] From this arrangement, the network of bottling franchisees that Coca-Cola relies on today was born.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List

Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)

Large beverage companies generally use their economies of scale to maintain market share and compete against encroaching micro-brands. When a small beverage company finds a niche market, as VitaminWater and Honest Tea did, the general trend is for one of the larger beverage companies to acquire them. Where there is competition in carbonated soft drinks, the major brands use their brand equity to keep most consumers loyal. When competition arrives in the form of small health drink companies, the story is different. Aside from packaging trends, demand trends are making healthier drink alternatives the increasingly popular choice for consumers. Accordingly, the major companies see it more cost effective to simply acquire the competition.[ "Mergers and Acquisitions Heat Up in Food and Beverage Industry." Logistics Consultants, Supply Chain Systems, Warehouse and Distribution Consulting. Web. 01 May 2011. http://www.tompkinsinc.com/industries/mergers-acquisitions/mergers-acquisitions-food-beverage.asp .] The majors also use M&A deals to enter emerging markets, as Coca-Cola did when it made an equity investment in Inca Kola in Peru.

With business model trend (1), above, the goal of acquiring brands is largely strategic. The odds of introducing a product in an emerging niche market and having it succeed are too slim and financially risky. Therefore, behemoth beverage companies like Coca-Cola and PepsiCo will routinely survey the market for other companies who have already accomplished the unlikely feat of succeeding in a niche market. Then, the larger company acquires the smaller one and all those great products belong to the major company. In this way, companies like Coke enhance their strategic goals of tapping all possible beverage markets while avoiding the massive financial risks. When the majors acquire smaller brands, there’s a chance that some followers of the brand will be alienated and cease to be customers. But when a Coke or PepsiCo-type company takes over a brand, that brand has access to the best distribution and marketing networks in the world. The exposure those brands gain automatically boosts their sales volume across target markets.

In pursuing the largely financial objectives of streamlining operations to improve efficiency, major beverage companies have begun integrating vertically. This takes place as bottling and distribution partners down the supply chain are acquired, as described in business model trend (2), above. Historically, the major beverage makers have left bottling and distribution responsibilities to partner companies. In Coca-Cola’s case, one such partner is Coca-Cola Enterprises (CCE). This type of bottling outsourcing simplifies operations and frees up vital funding for use on other projects, including international expansion, R&D, and brand diversification. Now that the global market for beverages has reached maturity, the places where major beverage companies can look for financial streamlining or simplification have narrowed significantly. With fewer untapped international markets, the major beverage companies are running into the issue of sustaining profit growth. Cash flows, therefore, are relatively healthy these days. Accordingly, the M&A activities of the major beverage companies tend to happen entirely in cash and stock. Coca-Cola rarely, if ever, uses financing sources directly to close on M&A deals. Naturally, the exact timing of cash flows may require these companies to tap revolving credit facilities. Generally though, the relatively small size of acquisitions lends to their closure in cash. The obvious benefit of this is that financing contingencies don’t hold back deals from finalizing.

As the adage goes, where revenue can’t be increased, costs must be decreased. The desire to enhance profitability has been a key driver of business model trend (2), above, in recent years. Last year, PepsiCo acquired its two largest bottling partners, Pepsi Bottling Group (PBG) and PepsiAmericas (PAS). Likewise, Coca-Cola has taken the initiative to acquire some of its bottling partners. In particular, Coca-Cola on February 25, 2010 reached an agreement with Coca-Cola Enterprises (CCE) to acquire the North American operations of that company. The extent of CCE’s operations in the North American market is substantial and is explained later on. CCE will continue to exist in much smaller form exclusively in Europe. This industry trend of bottom-line growth through vertical integration, specifically the Coca-Cola/CCE acquisition, will be the focus of ensuing discussion.

More posts from a paper on Coca-Cola M&A Activity (including merger with CCE):

Coca-Cola M&A Activity, CCE Acquisition: Executive Summary
Coca-Cola M&A Activity: Introduction
Coca-Cola M&A Activity: Product Trends
Coca-Cola M&A Activity: Demand and Economic Trends
Coca-Cola M&A Activity: Business Model Trends in the Beverage Industry
Coca-Cola M&A Activity: Beverage Industry Business Model Trends (2)
Coca-Cola M&A Activity: Company Strategic Objectives
Coca-Cola M&A Activity: Company Strategic Objectives (2)
Coca-Cola M&A Activity: Company Portfolio Analysis
Coca-Cola M&A Activity: Company Portfolio Analysis (2)
Coca-Cola M&A Activity: Company Portfolio Analysis (3)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor)
Coca-Cola M&A Activity: PepsiCo M&A Portfolio Analysis (Largest Competitor) (2)
Coca-Cola M&A Activity: Other Beverage Industry M&A Activity
Coca-Cola Acquisition of CCE North America: Deal Structure
Coca-Cola Acquisition of CCE North America: Deal Structure (2)
Coca-Cola Acquisition of CCE North America: Major Legal and Financial Players
Coca-Cola Acquisition of CCE North America: Regulatory and Shareholder Approval of the Transaction
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success
Coca-Cola Acquisition of CCE North America: Implementation Analysis: Likelihood of Acquisition Success (2)
Coca-Cola Acquisition of CCE North America: Conclusion to M&A Deal Analysis
Coca-Cola CCE Merger: Table of Contents and Works Cited List