Coca-Cola nearing deal to buy largest bottler

According to sources familiar with the matter who refused to be identified, the company is expected to acquire its largest bottler for around $15 billion, thus reversing its policy of keeping the bottling unit separate from its soft drink business.

Acquisition talks underway
The boards of both the companies are still in discussion and have yet not confirmed the deal.

The deal could be reached in few days or could fall apart if the boards fail to reach consensus.

Coca-Cola Enterprises’ (CCE) European operations will not be affected by the acquisition and will remain independent.

As per the discussion, CCE could, in turn, acquire Coca-Cola’s bottling operations in Scandinavia, Germany and other European areas.

Both Coke spokesman and CCE’s representative have yet not commented on the deal talks.

Takeover aimed at strengthening market position
If the deal materializes, the acquisition will echo the same move initiated by the company’s rival PepsiCo Inc. in August last year.

Like its contender, Coca-Cola is hoping that by taking over the bottling operations, it will be able to turnaround weak sales of soft drinks in U.S. market.

With consumers increasingly shifting to non-carbonated teas, juices, and energy drinks, the carbonated beverages sales have plummeted drastically over the years.

Though CCE has posted a profit of $110 million for the fourth quarter, its Northern American operations had reported 5 percent drop in volume for 2009.

Further, Coca-Cola’s net income for the fourth quarter stood at $1.54 billion compared to net income of $995 million for the same period in 2008.

By acquiring the bottling operations, Coke is hoping to attain greater flexibility to adapt to consumers’ changing tastes and preferences.

Sachin Shah, a special situations and merger arbitrage strategist at Capstone Global Markets LLC in New York, told BusinessWeek that acquiring bottling unit “extracts synergies and cost savings.”

“We expect that Coca-Cola Enterprises will not grow revenue significantly,” he added.

Deal beneficial for consumers
The acquisition, if finalized, would mean lower prices of carbonated beverages, as some distribution cost will be reduced.

Since the company will adapt to consumers’ tastes, it would mean wide variety of drinks in the market.

Coca-Cola’s shares rose 33 cents to $55.16 Wednesday in New York Stock Exchange composite trading.