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A 3-Way Coca-Cola Bottler Merger: What Investors Should Know

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Three Western European Coca-Cola bottlers announce their intention to merge

On August 6, three bottlers in the Coca-Cola (KO) network—Coca-Cola Enterprises (CCE), Coca-Cola Iberian Partners (or CCIP), and Coca-Cola Erfrischungsgetränke AG (or CCEAG)—announced their intention to merge. The bottler merger would create a new entity called Coca-Cola European Partners PLC (or CCEP). CCEP will operate in 13 countries in Western Europe with a market catchments area of over 300 million consumers.

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CCEP would be the largest bottler in terms of sales in the Coca-Cola network, with annual revenue of $12.6 billion.[1. Based on pro forma financials for 2015] The transaction has already been cleared by the companies’ respective boards of directors. It’s expected to close in 2Q16, subject to the requisite shareholder and regulatory approvals.

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Bottler background

Bottlers make up a highly fragmented industry. Bottler operations are typically limited to meeting particular regions’ beverage requirements.

The Coca-Cola bottling system comprises ~250 bottlers across the globe. The Coca-Cola Company sells its bottlers’ concentrates, syrups, and bases. Bottlers then produce, package, and distribute products to wholesale and retail (XRT) customers. Coca-Cola has often taken a stake in its bottlers, ranging from less than 20% to 100% ownership, as is the case in CCEAG.

Bottler consolidation

In 2010, PepsiCo (PEP) had announced it was acquiring its two largest bottlers, Pepsi Bottling Group and PepsiAmericas, for a total purchase price of $12.6 billion in a cash and shares deal.[1. Including previously held equity interest of $4.3 billion] In contrast to Coca-Cola, PepsiCo has looked at a more vertically integrated model, as US soda volumes have remained under pressure in the past few years. Bottler acquisitions have enabled the beverage maker to push faster-moving products along the supply and distribution chain.

In this series, we’ll analyze the financial and operational rationale behind the bottler merger and how the industry landscape coulde change in terms of distribution.

KO, CCE, and PEP together constitute 14.2% of the holdings in the Consumer Staples Select Sector SPDR Fund (XLP) and 1.7% in the SPDR S&P 500 ETF (SPY).

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