Global beverage giant The Coca-Cola Company has made a deal with South African multinational brewing and beverage company SABMiller to acquire its Appletiser drinks brands on a worldwide basis, and acquire or be licensed rights to a further 19 non-alcoholic ready-to-drink brands in Africa and in Latin America, for an approximate cash consideration of US$260 million.

SABMiller will retain ownership of its non-alcoholic malt beverages in Africa and Latin America and will retain its Coca-Cola franchises in El Salvador and Honduras.

The acquisition is part of a deal that will see The Coca-Cola Company, SABMiller and Gutsche Family Investments (GFI, majority shareholders in Coca-Cola Sabco) have agreed to combine the bottling operations of their non-alcoholic ready-to-drink beverages businesses in Southern and East Africa.

The new bottler, Coca-Cola Beverages Africa, will serve 12 high-growth countries accounting for approximately 40 per cent of all Coca-Cola beverage volumes in Africa.

Appletiser opportunities

Australian Food News notes that the acquisition of the Appletiser brands may represent an opportunity for The Coca-Cola Company to increase its share of apple-based drinks in various parts of the world.

In Australia, the alcoholic apple cider market has been on the up and up, with Australian Food News reporting in June 2014 that cider sales were looking set to overtake alcopops. At the same time, consumption of alcohol in Australia continues to decline, with Australian Food News reporting in April 2014 that Australians were drinking less alcohol overall than at any time in the past 15 years.  The Appletiser brand may allow The Coca-Cola Company to ride the wave of popularity of apple-based drinks and capture the non-alcoholic market.

The Appletiser brand may also facilitate an alternative to Coca-Cola’s traditional soft drinks for expanding its presence in the non-alcoholic drinks market in countries like China, which is a large producer of apples.

‘Significant’ growth potential for beverages in Africa

The Companies said Africa offered significant growth potential in beverages, underpinned by rising personal disposable income, a fast-growing population and increasing per capita consumption.

With more than 30 bottling plants and over 14,000 employees, Coca-Cola Beverages Africa will be the largest Coca-Cola bottler on the continent, with the scale, complementary capabilities and resources to capture and accelerate top-line growth.

On full completion of the proposed merger, shareholdings in Coca-Cola Beverages Africa will be SABMiller: 57.0 per cent, Gutsche Family Investments: 31.7 per cent and The Coca-Cola Company: 11.3 per cent.

“A combined Coca-Cola bottling operation is further evidence of our commitment to Africa, and our firm belief in the tremendous growth prospects that the continent offers,” said Muhtar Kent, Chairman and CEO of The Coca-Cola Company. “As one of the top 10 largest Coca-Cola bottling partners worldwide, Coca-Cola Beverages Africa can leverage the scale, resources, capability and efficiency needed to accelerate Coca-Cola growth and contribute to the economic and social prosperity of African communities,” he said.

Soft drinks “important” for SABMiller’s growth strategy

Alan Clark, SABMiller Chief Executive, said soft drinks were an “important element” of SABMiller’s growth strategy.

“This transaction increases our exposure to the total beverage market in Africa,” Mr Clark said. “The opportunity is significant, with favourable demographics and economic development pointing to excellent growth prospects. This also signifies a strengthening of our strategic relationship with The Coca-Cola Company” he said.

Phil Gutsche, Chairman of Gutsche Family Investments (GFI), said, his family saw the merger as “an important and logical step to enable Coca-Cola Beverages Africa to optimise the opportunities for development in the rapidly-evolving Africa beverage market”.

“We are very excited about the opportunity and are totally committed to ensuring that Coca-Cola Sabco’s distinctive culture is successfully integrated with that of our new partners in order to create an even more successful business in the future,” Mr Gutsche said.

Global opportunities for Coca-Cola to develop Appletiser

The acquisition of the Appletiser brands may present an opportunity for Coca-Cola to develop the brand in countries that produce large quantities of apples. Industry observers are speculating that the Appletiser brand will open huge marketing opportunities for the Coca Cola group globally and especially in Asia and Eastern Europe.

China is one of the largest apple-growing countries in the world. According to data from the United Nations Food and Agriculture Organisation (FAO), China produced an average of more than 35 million tonnes of apples between 2010 and 2013.

Other large apple-growing countries include Poland (an average of 2.4 million tonnes between 2010 and 2013), Turkey (2.7 million tonnes) and India (2.3 million tonnes).

Transaction details

In a transaction to be completed in two phases, Coca-Cola Beverages Africa will bring together:

• SABMiller’s South African soft drinks bottling businesses, Amalgamated Beverage Industries (ABI) and Appletiser, and its soft drink bottling businesses in eight other African countries
• GFI’s bottling interests in Coca-Cola Sabco, including its South African bottler, Coca-Cola Fortune, and its bottling operations in six other African countries
• The Coca-Cola Company’s South African soft drinks businesses in the form of Coca-Cola Canners, Valpré and Coca-Cola Shanduka Beverages

Coca-Cola Beverages Africa will initially produce and distribute Coca-Cola beverages in nine countries: South Africa, Kenya, Ethiopia, Mozambique, Tanzania, Uganda, Namibia, Comoros and Mayotte.

SABMiller intends to include at a later date its Swaziland soft drinks business and those of its listed subsidiaries in Botswana and Zambia, subject to agreement in due course with those subsidiaries and the requisite regulatory and shareholder approvals.

Phil Gutsche will be Chairman of Coca-Cola Beverages Africa and Port Elizabeth, South Africa is the intended location for the company’s headquarters.

Phases of the transaction and closing conditions

In Phase I:

• SABMiller will contribute its Coca-Cola bottling franchise (ABI) and Appletiser bottling businesses in South Africa, together with its soft drinks businesses in Comoros and Mayotte, as well as its water businesses in Ethiopia, Kenya and Uganda.
• GFI will contribute Coca-Cola Fortune in South Africa and its other African Coca-Cola bottling businesses in Ethiopia, Kenya, Mozambique, Namibia, Tanzania and Uganda.
• The Coca-Cola Company will contribute its South African soft drinks bottling businesses, Coca-Cola Canners, Valpré, and Coca-Cola Shanduka Beverages. Completion of Phase I is subject to a number of customary closing conditions, including regulatory approvals in South Africa and other African jurisdictions, and is expected to complete within the next 6-9 months.
• Coca-Cola Beverages Africa’s results will be fully consolidated into SABMiller plc’s financial statements. The Coca-Cola Company will equity account for its stake in Coca-Cola Beverages Africa.

In Phase II:

• SABMiller intends to contribute its Swaziland soft drinks bottling business, and the soft drinks bottling businesses of its listed subsidiaries in Botswana and Zambia to Coca-Cola Beverages Africa.

Completion of Phase II is subject to a number of customary closing conditions, including regulatory approvals and requisite shareholder approvals, and is expected to be completed 12-18 months after the completion of Phase I.

Advisers

Rothschild advised SABMiller. Nomura International and NLA advised Coca-Cola Sabco.