KO Coca Cola Company

By Mike Esterl 

Coca-Cola Co. has agreed to buy Nigeria's largest juice maker, accelerating its push into Africa and deepening its diversification drive in response to slowing soda sales.

Coke said Saturday it acquired an initial 40% stake in TGI Group's Chi Ltd., which also sells dairy and snacks, and intends to buy the remaining 60% within three years. The deal values Chi at a little less than $1 billion, according to a person familiar with the matter.

The investment in Africa's largest economy represents Coke's biggest overseas acquisition since 2012, when it paid roughly $980 million to buy roughly half of Dubai-based Aujan Industries, a leading maker of juice and malt beverages in the Middle East.

The Atlanta-based beverage giant increasingly is targeting Africa for growth amid sluggish sales in more-developed markets. Coke said in 2014 it would invest $17 billion in the continent this decade with bottling partners, roughly three times as much as in the previous decade.

It also signals a redoubled effort to expand beyond core soda brands including Coke, Sprite and Fanta at a time when health authorities in many parts of the world are singling out sugary drinks for contributing to rising obesity and diabetes.

This week a World Health Organization commission recommended that governments consider special taxes on sugar-sweetened beverages, following the example of Mexico, which introduced levies on soda and junk food in 2014. The commission estimated the number of overweight children younger than 5 in Africa has nearly doubled to 10.3 million since 1990.

Coke had a 45% share of the $18.12 billion soda market in the Middle East and Africa last year, but only 3.5% of the region's fragmented $8.03 billion juice market. Closely held TGI was the No. 2 juice player behind Iran-based Alifard Co., with a 4.2% market share and $337 million in retail sales, according to Euromonitor International.

In addition to its Chi and Chivita juice brands, TGI's Chi Ltd. sells evaporated milk and drinkable yogurt under the Hollandia brand and snack foods including Muff the Muffins and Beefie Beef Rolls.

"We are extremely optimistic about Africa's continued economic and social growth and recognize the importance of ensuring we stay one step ahead of evolving consumer tastes by broadening our portfolio and introducing new products," said Kelvin Balogun, president of Coca-Cola Central, East and West Africa, in a news release.

Coke and TGI, also known as Tropical General Investment, said they would discuss other opportunities in the region to further develop their relationship. TGI owns several other companies ranging from poultry and fish farming to frozen foods and cotton. Its businesses span a dozen countries, including South Africa, Morocco and China.

A Coke spokesman declined to elaborate on potential opportunities, but reiterated that Coke's strategic focus remains beverages.

The deal comes amid uncertainty over Coke's soda-bottling partnerships in Africa after brewer Anheuser-Busch InBev NV agreed last October to acquire SABMiller PLC, which bottles and distributes Coke in South Africa and several other markets. AB InBev is a bottler in Latin America for PepsiCo Inc., Coke's chief rival. Many industry observers also say AB InBev eventually could try to acquire Coke.

Coke agreed in late 2014 to combine bottling assets with SABMiller and privately held Gutsche Family Investments to create a joint venture spanning 12 African countries and about 40% of Coke's soft-drink volumes on the continent. The venture is expected to secure regulatory approval in the first half of this year after South African authorities held it up over job-loss concerns.

As part of that bottling deal, Coke also agreed to pay $260 million for the world-wide rights to SABMiller's Appletiser, a carbonated apple juice, and the rights to another 19 nonalcoholic brands in Africa and Latin America.

Coke still derives about 70% of its global sales from soda despite a decadeslong push into noncarbonated beverages including bottled water, juice and tea. The company's soda volumes grew only 1% in the first nine months of 2015, compared with 4% growth for its noncarbonated beverages.

In another diversification move, Coke agreed last April to acquire China Culiangwang Beverages Holdings Ltd. for about $400 million including debt. Culiangwang specializes in "multigrain beverages" with flavors such as red bean, walnut and oats, in addition to selling snacks, biscuits and cereals.

Coke also has built up a small dairy business, teaming last year with bottling partner Arca Continental to acquire the majority of Ecuadorean dairy company Tonicorp. The company also has reported growth from brands including Minute Maid Pulpy Super Milky, a mix of juice and milk developed in China, and Santa Clara, which makes yogurt and other dairy products in Mexico. It launched Fairlife, a lactose-free milk with 50% more protein and 30% fewer calories than regular milk, in the U.S. in late 2014.

Last June Coke paid $2.15 billion to acquire a 16.7% stake in California-based Monster Beverage Corp., the largest maker of energy drinks in the U.S. by volume, also securing rights to become Monster's preferred distributor overseas.

Muhtar Kent, Coke's chief executive, said last October that the company would continue to seek "bolt-on'" acquisitions to grow and diversify.

Many Coke watchers think overseas deals are more likely. About 90% of Coke's $19.16 billion in cash and short-term investments were parked outside the U.S. at the end of the third quarter, helping it avoid repatriation taxes.

Write to Mike Esterl at mike.esterl@wsj.com

(END) Dow Jones Newswires

January 30, 2016 14:32 ET (19:32 GMT)

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