Coke Completes Its Near-Record Stock Offering : Pressured to Lower Price, Proceeds Fall Far Short of What Firm Had Sought
Coca-Cola’s newly formed bottling company successfully completed a near-record initial public offering of stock on Friday, but the sale’s proceeds were considerably less than the company had sought.
The soft drink giant initially hoped to sell the stock of the new company, Coca-Cola Enterprises, for between $21 and $24 a share. At that price, the offering would have been the largest ever in the United States.
But many institutional investors complained that the price range was too high relative to the new company’s earnings prospects and debt burden, and the final offering price was sliced to $16.50.
Still, the 60.69 million common shares sold in the United States at $16.50 each totaled $1.001 billion, making the sale the second-largest U.S. initial public offering behind the $1.19 billion offer by Henley Group of La Jolla last May 20. (These figures do not include additional stock sold outside the United States.)
“The deal itself is obviously a vast disappointment to Coca-Cola Enterprises,” said Norman G. Fosback, editor of New Issues newsletter. “Clearly, investors did not think this offering was high-quality.”
Coca-Cola Enterprises was formed by parent Coca-Cola Co. of Atlanta earlier this year to combine Coke’s company-owned bottlers and the recently acquired bottling operations of Beatrice Cos. and JTL Corp. Included is Coca-Cola Bottling of Los Angeles.
51% of New Firm
The stock sold Friday represents 51% of Coca-Cola Enterprises’ total shares; Coca-Cola Co. will own the remaining 49%.
In trading Friday on the New York Stock Exchange, activity was heavy. The stock closed at $16.50 a share after more than 18 million shares changed hands, including a 6-million-share block that crossed at $16.50 a share. Heavy trading is not unusual in initial offerings, Fosback said.
The new company will have annual sales of about $3 billion, but analysts expect its near-term profits to be relatively weak because of the heavy debt incurred from the Beatrice and JTL acquisitions. Coca-Cola Enterprises plans to use the sale’s proceeds to reduce its debt.
In a statement, Douglas Ivester, Coca-Cola’s chief investment officer, said the company was “delighted that our objective of creating a permanent, stable business structure for the largest bottler of Coca-Cola in the United States and the world has been attained.”
“We are confident that value will accrue to the shareholders of the Coca-Cola Co. as a result of this achievement,” he said.
“I think Coke Enterprises will be a fast-growing company, but the price at which it was offered was higher than I was willing to pay,” said analyst Gary Langbaum of Northern Trust Corp. “The lower price alone does not make it a better deal on a price-earnings basis.”
“The controversy is that the underwriters have tried to sell this deal on a cash flow basis rather than earnings per share,” said an analyst who preferred not to be identified.
Cash flow refers to a company’s earnings after taxes plus depreciation and other non-cash charges.
10 BIGGEST PUBLIC OFFERINGS IN THE U.S.
Offering Business Date of Issue 1. The Henley Group Diversified industrial May 20, 1986 2. Coca-Cola Enterprises Soft drink bottling Nov. 21, 1986 3. First Australian Closed-end income fund April 17, 1986 Prime Income Fund 4. Fireman’s Fund Insurance Oct. 24, 1985 5. Rockefeller Center Real estate April 12, 1985 Properties 6. Commercial Credit Finance Oct. 29, 1986 7. Ford Motor Co. Automobiles Jan. 18, 1956 8. Global Yield Fund Closed-end investments June 30, 1986 9. UNUM Insurance Nov. 5, 1986 10. Liberty All Star Closed-end investments Oct. 24, 1986 Equity Fund
Amount raised* 1. $1.19 billion 2. $1.001 billion 3. $855 million 4. $824 million 5. $750 million 6. $662.1 million 7. $657.9 million 8. $655.5 million 9. $561.4 million 10. $510 million
* Excludes money raised by new issues sold outside the United States.
Source: The Institute for Econometric Research
