Last drinks for Amatil as Coke engineers sale to Europeans

Last Drinks For Amatil As Coke Engineers Sale To Europeans

Coca-Cola European Partners’ $9.3 billion offer for Coca-Cola Amatil took shareholders by surprise but given the bottler’s underperformance over the past decade it was only a matter of time before Australia’s largest non-alcoholic beverage bottler was consumed by another Coke bottler.

Atlanta-based The Coca-Cola Co acquired a majority stake in Coca-Cola Amatil in 1989 and as its major shareholder, major supplier and franchisor, it has been arguably calling the shots ever since, despite the company’s efforts to maintain the appearance of independence.

Most of CCA’s major strategic moves for almost three decades have been at the behest of Atlanta, including the $975 million acquisition and subsequent sale of Coke bottling rights in South Korea, the $2.65 billion acquisition and sale of Coke rights in the Philippines in 1997, CCA’s entry into the Europe in the 1980s and its exit from Europe in 1998.

Atlanta also scuttled a $7.6 billion merger between CCA and Lion Nathan (now Lion Dairy & Drinks) in 2008. The merger would have created a beverages powerhouse, with interests in carbonated soft drinks, bottled water, juice, flavoured milk, beer, wine and spirits, but Coke’s stake in the combined group would have been reduced to 8 per cent and it would no longer have had de facto control.

So it’s no wonder investors believe the $9.3 billion takeover proposal from Coca-Cola European Partners, unveiled on Monday, was engineered by the Coke head office.

There has long been speculation that TCCC wasn’t happy with CCA’s performance, particularly in Indonesia, and was uncomfortable with the bottler’s expansion in alcoholic beverages.

CCA has underperformed the benchmark S&P/ASX 200 index significantly over the past decade as consumers shifted away from sugary soft drinks and bottled water, squeezing the bottler’s volumes, sales and profit margins.

Atlanta decided almost two years ago it would make sense to consolidate its global bottling assets and merge Amatil, which makes Coke in Australia, New Zealand, Indonesia, Papua New Guinea and Fiji , with its largest bottler, London-based CCEP.

“It feels like TCCC had a part in stitching this together, it helps to simplify its bottler partnerships and their relationship with Amatil has been strained at times,” said Chris Tynan, an investment analyst at DNR Capital.

“They’ve never been overly happy with the management of Australia and have dusted money on their Indonesian joint venture,” said another fund manager, citing Coke’s $US500 million acquisition of a 30 per cent stake in Amatil’s Indonesian business in 2014.

He pointed to the fact that Coke planned to accept a lower price from CCEP for its 30.8 per cent stake than CCA’s independent shareholders are getting.

CCEP plans to offer Amatil’s independent shareholders $12.75 a share – a 28 per cent premium to the one-month volume weighted average price and a 38 per cent premium to the three-month VWAP.

But Atlanta has agreed to sell one third of its stake to CCEP for $9.57 a share – giving up $700 million in takeover premium – and will convert the remainder of its stake into shares in CCEP, emerging as its largest shareholder.

“Ultimately [The Coca-Cola Co] has said ‘yes’ to the guys in the UK and ‘no’ to Amatil,” one analyst said.

A better offer

“It might not have been [TCCC’s] idea but the idea of changing who is running this asset is something they [TCCC] would have to agree with,” he said.

Although CCEP made the first approach to CCA, back in February 2019, offering less than $10 a share, and returned with a better offer last month, no deal would be possible without Atlanta’s support.

Group managing director Alison Watkins rejected suggestions on Monday that Atlanta had lost confidence in the management of Amatil.

“I think … when they look at us, they see a very good quality business with a very strong, obviously competitive position,” Ms Watkins told analysts and investors.

“They are attracted to the breadth of our portfolio, our market share and also, I think, they see the recovery that our business is making and the way the health situation is being managed in this part of the world.”

Ms Watkins also rejected a long-held view that TCCC was unhappy with the bottler’s expansion into alcoholic beverages.

CCA was forced to unwind a brewing joint venture with global beer giant SABMiller in 2011 but subsequently built a substantial beer, cider and spirits business with revenues of more than $600 million.

The alcoholic beverages business had been performing better than carbonated soft drinks, water and juice, particularly during the pandemic.

CCA was on the verge of buying a portfolio of beer and cider brands from Asahi days before the CCEP deal was unveiled. There was also speculation it was interested in buying flavoured milk brands from Lion Dairy & Drinks.

A full range of drinks

“In recent years the TCCC have been very supportive of that strategy,” Ms Watkins said.

“I think the TCCC have seen many benefits in the breadth of our portfolio, for example with licensed customers, the fact we can go to market with a full range of drinks – it’s a strength and it ends up creating value all around for all our partners,” she said.

Whether Amatil goes ahead with the Asahi and Lion deals remains to be seen.

Chairman Ilana Atlas said the CCEP proposal did not preclude CCA from undertaking bolt-on acquisitions.

“We’ve agreed terms with CCEP that would allow us to continue to progress any material transactions that … are strategically logical and add value for the long term,” she said.

The 116-year old company has a history of growth through acquisition.

It started life in 1904 as the British Tobacco Company Limited and over the next 60 years diversified into printing, packaging, snack foods and soft drinks, buying Perth-based Coca-Cola Bottlers Pty Ltd in 1965.

Coca-Cola had been introduced into Australia by American troops during World War II and by the 1960s, the brand was a household name.

In 1977 British Tobacco changed its name to Allied Manufacturing and Trade Industries Ltd – Amatil for short – and embarked on a new wave of acquisitions, buying up other Coca-Cola bottling franchises in Australia as well as Coke bottling rights in Europe, South Korea, the Philippines, Indonesia, Papua New Guinea and Fiji.

The Coca-Cola Co acquired a majority stake – 41 per cent – in 1989, when Amatil sold its tobacco business, WD & HO Wills, to British American Tobacco’s BAT Industries.

Atlanta paid $410 million for BAT’s 41 per cent stake in Amatil, which changed its name to Coca-Cola Amatil. Over the last 30 years Atlanta’s stake has been whittled down to 30.8 per cent, but it’s now worth $2.7 billion.

“The Coca-Cola Company is supportive of the proposed Coca-Cola European Partners and Coca-Cola Amatil transaction, as we believe it is in the best interests of the shareowners of both companies and of the Coca-Cola system overall,” the beverage giant said.

“We are confident that by combining the significant strengths and capabilities of CCEP and Amatil, we will unlock further growth and value in their important markets.”

CCEP chief executive Damian Gammell said the proposal was an opportunity to combine two of the world’s best bottlers, creating a broader and more balanced geographic footprint, including exposure to Indonesia, one of the most attractive and populous emerging markets.

“Both companies have a proud heritage, strong operating models and excellent people. This larger platform would enable us to scale up even faster than before and solidify our position as the largest Coca-Cola bottler by revenue, further strengthening our strategic partnership with The Coca-Cola Company.”

Article credit – Financial Review, written by Sue Mitchell –

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