Coca-Cola to Acquire Bottlers in $1-Billion Deal
In its largest single purchase ever, Coca-Cola Co. has agreed to pay $1 billion for independent bottling operations in eight states and Canada, including plants in Los Angeles and San Diego.
The purchase from BCI Holdings would give Coca-Cola control of about 18% of its domestic bottling operations. The deal, subject to approval by directors of BCI and Coke, is scheduled to be concluded by August, officials of the companies said Monday.
Other properties in the buyout include bottling operations in Nevada, Hawaii, Arizona, Nebraska, Kansas, Wisconsin and Iowa. The Canadian property is in the province of British Columbia.
The transaction--far larger than either the Atlanta-based soft-drink giant’s planned $470-million acquisition of No. 3 beverage maker Dr Pepper or the $692-million price that Coke paid for Columbia Pictures Industries in 1982--would further an industrywide consolidation of independent bottlers.
Coca-Cola President Donald R. Keough said Monday in a statement that the purchase “is a continuation of our bottler restructuring program initiated several years ago.” He said Coke “will continue to evaluate our options for realignment of our U.S. bottling properties, including the BCI properties, once the acquisition is complete.”
BCI was formed in the $6.4-billion leveraged buyout of Beatrice Cos. in April, 1986, by the privately held investment firm Kohlberg, Kravis, Roberts & Co. Proceeds from the sale will be used to repay some of the debt from the acquisition that took Beatrice private.
Chicago-based Beatrice is a giant consumers goods conglomerate. Its holdings include Hunt-Wesson, Tropicana, Playtex, Samsonite and Swift-Eckrich.
The holding company is rumored to also be negotiating the sale of Beatrice’s Tropicana juice line, valued at about $500 million. However, Beatrice spokesman Charles Long declined to say whether the sale of other Beatrice units is likely.
Coca-Cola said its purchase of the bottling operations would be financed through borrowing instead of using cash or equity.
The purchase continues a trend of consolidating bottling franchises in the hands of experienced bottlers willing to squeeze profits from efficient distribution and from selling soft drinks in high volume rather than from high unit prices, said Emanuel Goldman, a beverage analyst at Montgomery Securities in San Francisco.
“Both Coke and Pepsi are interested in mixing and matching franchises . . . into more efficient territorial units,” Goldman said.
Pepsico, for example, paid $590 million in cash earlier this year to acquire its third-largest independent bottler, MEI Corp. of Minneapolis. Coca-Cola has been involved as either a seller, buyer or broker in 65% of the sales of Coke bottling businesses since 1980, when the company launched its restructuring program. The number of independent Coke bottlers has fallen to 350 from more than 1,000 some 30 years ago, Coke officials said.
Yet both companies say that they are not interested in operating bottling plants; they say that they are only interested in seeing that those plants are in the right business hands.
“The objective is not for us to own bottling plants,” said Carlton Curtis, a spokesman for Coca-Cola. “Our interest is having our bottling plants in the hands of strong ownership groups.”
The deal includes the acquisition of Coca-Cola’s landmark bottling plant in Los Angeles, located in the old downtown industrial area at 1334 S. Central Ave. Built in 1915, the plant got its “moderne” ship facade in 1936 from architect Robert Derrah. It was renovated again in the mid-1970s.
Coke also announced Monday that it had amicably discontinued merger talks with JTL Corp., a Chattanooga, Tenn., company that is the largest independently owned Coca-Cola bottling operation in the United States with about 13% of Coca-Cola’s bottling volume.
JTL lawyer Joel Richardson declined to comment on the reason that the talks were discontinued. But Jesse Meyers, publisher of Beverage Industry, an industry newsletter, said discussions with JTL, a closely held family corporation, snagged over family member’s concerns about what impact the proposed changes to the federal tax code might have on any sale of their business.
Both Meyers and Goldman said they expected that the JTL bottling operations would eventually be sold to Coca-Cola.
