When will Coca-Cola sell its rebuilt bottlers?
“Why should I care about the rubbish I said yesterday?” Germany’s first post-war Chancellor Konrad Adenauer allegedly retorted when asked why he had done a U-turn on certain policies.
Whether Coca-Cola’s CEO Muhtar Kent will get away with an explanation like this, once he sells off the company’s bottlers – and reneges on current company doctrine, remains to be seen. But pressure from Wall Street to reap the rewards from a disposal of the bottlers is mounting.
Investors reacted with mild favour on 9 February 2011 when The Coca-Cola Company reported a big profit gain in 2010, as revenue spiked and worldwide volume grew 5 percent. Revenue was USD 35.1 billion, up 13 percent on the previous year, while net income came to USD 11.8 billion, a rise of 73 percent.
Coca-Cola’s share price meanwhile only nudged up 0.5 percent, possibly because of the company’s go-slow approach to unloading bottling operations across the globe that it has finally shaped up after several years of rebuilding.
Indeed, some investors are beating the drum for Coke to sell off these bottlers.
In an interview with U.S. media, CEO Muhtar Kent noted the need for the stars to be perfectly aligned before Coca-Cola will sell its company-owned bottlers. “When the time is right,” said Mr Kent, “we will find the right home at the right financial conditions.”
Readers will remember that it was only a few decades ago that The Coca-Cola Company spun off its bottlers. Many fared badly on their own. A few years ago, Coke faced a revolt of sorts among its bottling partners who felt out of step – and sometimes felt in the dark – with their concentrate supplier. At times they were loath to invest in their bottling operations.
That hurt The Coca-Cola Company. So, in January 2006, the company formed its Bottling Investments Group to bring all of its bottling operations under one roof, in which it owned stakes, to fix them up for a future sale.
In 2009, CEO Kent was talking about the need to turn around bottling operations the beverage maker acquired in the Philippines, Germany, India, China, Uruguay and parts of Brazil.
That task seems to have been completed. Coca-Cola’s bottling operation in Germany, for example, posted a 1 percent increase in shipments in 2010 – its first rise since 2007. The bottler in the Philippines hiked shipments by more than 10 percent, Brazil posted 11 percent growth, India rose at a staggering 17 percent rate, China 6 percent and North America 1 percent, it was reported.
Unsurprisingly, in view of these positive performances, Mr Kent had to face a barrage of questions from analysts as to when he would re-sell them.
But Mr Kent, a smooth talker, would not be drawn. Instead he dodged these questions by pointing out that first he would have to find a buyer that would pay a fair purchase price. He added that the company is looking for more than just someone with the highest offer. “This is a very closely aligned system. It’s not like selling another product, or a car, or a factory,” Mr Kent said. “It’s a very different set of circumstances.”
It’s a pity that last year Mr Kent concluded a deal with Coca-Cola Enterprises (CCE), a bottler, which proved to investors just how a profitable disposal of bottlers could be done.
As part of that largely cashless deal, Coca-Cola gave CCE its bottling operations in Norway and Sweden, as well as the right to acquire Coca-Cola’s majority stake in its German bottling operations.
Once The Coca-Cola Company completed the transaction with CCE at a high market-value price, the beverage company ended up posting a USD 5 billion gain on the deal.
Now if Coca-Cola were to do the same with its other rebuilt bottling operations around the world, lots of money could end up in Coca-Cola’s coffers.
As readers will understand, for investors similar sales can’t come soon enough. But Mr Kent only offered this comment:
“We are here to generate long-term sustainable growth for our shareholders. It’s not about a quarter or a year. It’s about achieving our 2020 vision, which is creating another Coca-Cola company in 10 years what it took to create in 125 [years]."
That may be so. In the end, Mr Kent may still be forced to do an Adenauer.
