By Mike Esterl
Three Coca-Cola Co. bottlers agreed to a merger combining $12
billion in revenue across 13 European countries, part of a global
consolidation push by the U.S. soda giant to cut costs amid slowing
sales.
Publicly traded bottler Coca-Cola Enterprises Inc., or CCE, also
would relocate its headquarters to the U.K. from the U.S. in the
planned tie-up with Spain's privately held Coca-Cola Iberian
Partners SA and Germany's Coca-Cola Erfrischungsgetränke AG, the
latter owned by Atlanta-based Coke.
CCE, which makes and distributes Coke in eight European
countries including the U.K. and France, would have a 48% stake in
the new company, Coca-Cola European Partners PLC. Iberian Partners
and Coke would have 34% and 18% stakes, respectively. The merger,
which would create the world's largest independent Coke bottler by
revenue, is subject to shareholder and regulatory approvals.
Coca-Cola European Partners will be based in London and traded
on the Euronext Amsterdam, New York Stock Exchange and Madrid Stock
Exchange. The Wall Street Journal reported last week the bottlers
were in advanced merger talks.
Coke Chief Executive Muhtar Kent told analysts in a conference
call Thursday that the bulked-up bottler would help "more
effectively compete and drive growth" across Western Europe. He
didn't rule out more bottling consolidation in the coming
years.
The three companies estimated the merger would generate $350
million to $375 million in annual cost savings within three years
that could be plowed back into marketing Coke, Sprite and dozens of
other beverage brands.
Coke reported in July that its beverage volumes in Europe were
flat in the first six months of 2015 as revenue fell 8% to $2.65
billion, weighed down by the strengthening dollar. Coke's global
volumes rose just 1% in the first half of the year, hurt by
sluggish sales of carbonated drinks as consumers shift to water and
other beverages.
The company sells beverage concentrate that it distributes to
hundreds of mostly independent bottling partners across the globe.
Making concentrate is a higher-margin and less capital-intensive
business than bottling. Larger bottlers, though, have greater scope
for efficiencies.
Coke has been eager to sell its German bottling operations for
several years and is in the midst of divesting its U.S.
distribution assets. In 2013, it sold its bottling assets in the
Philippines to Coca-Cola Femsa SAB, a Mexican bottler.
In 2014, Coke backed a deal combining bottling operations in
Southern and Eastern Africa into one serving 12 countries. The year
before that, it helped cement a merger between seven Spanish and
one Portuguese Coca-Cola bottlers, creating the Iberian Partners
business.
CCE said in July its beverage volumes declined 1% in the second
quarter from a year earlier. Revenue plunged 18% to $1.9 billion,
dragged down by weakening European currencies. By relocating its
headquarters to Europe, CCE will no longer have to convert its
results into dollars or pay U.S. taxes on repatriated profits.
But John Brock, CCE's chief executive, who will become CEO of
the combined company, said the planned merger isn't a so-called
inversion deal to generate tax savings. CCE was mainly a U.S.
bottler until 2010, when Coke bought CCE's North American
operations.
"This is not even remotely a tax-driven transaction. It's a
strategic and operational transaction," he told reporters on a
conference call Thursday.
Coke also has been hurt by weak consumer demand in Germany and
Spain. Coca-Cola Iberian Partners tried to lay off workers last
year, but Spain's Supreme Court ruled the company had to rehire
employees and provide back pay. The bottler is owned by Spanish
families who have been Coke partners since 1951.
CCE shareholders will receive one share in the combined bottler
for each CCE share and a one-time cash payment of $14.50 per share.
The newly created bottler will fund the $3.3 billion payment with
newly issued debt.
CCE shares were 2.9% higher at $53.36 in afternoon trade on the
New York Stock Exchange.
The companies expect the merger to close in the second quarter
of 2016.
Write to Mike Esterl at mike.esterl@wsj.com
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