One of the world’s biggest Coca-Cola bottlers has agreed to buy a majority stake in another, creating an African bottling giant in a transaction valued at about $2.6 billion.
Coca-Cola HBC AG will buy 75% of Coca-Cola Beverages Africa Pty. Ltd. from Coca-Cola Co. and another shareholder, Gutsche Family Investments, the companies said Tuesday. Coca-Cola HBC shares fell as much as 4.7% in London after the company canceled a share buyback program to help finance the deal.
The transaction creates the caffeinated beverage’s second-largest bottling partner by volume and marks another step in the U.S. company’s strategy to move away from the bottling business. Coca-Cola also sold a stake in its bottling operations in India this year.
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The Gutsche family from South Africa will be paid in cash and shares, meaning they will have a 5.5% stake in Coca-Cola HBC. Philipp Hugo Gutsche, the 84-year-old head of the family, previously served on the board of Coca-Cola Beverages Africa, and the family has said it will remain involved through the holding company.
Coca-Cola is diversifying to overcome falling demand for carbonated soft drinks. Its investments in bottling represented 13% of revenue last year, compared to 52% almost a decade ago. After sales close in Africa next year, that number should drop to about 5%, Coca-Cola said.
Coca-Cola’s strategy over the years has been to outsource capital and labor-intensive parts of the business, such as bottling, to third parties. Under license from Coca-Cola, which supplies the concentrate and defines the strategy, its independent partners produce the drinks, package them, hire trucks, distribute the products and market them in ways that suit local cultures.
The buyer, Coca-Cola HBC, intends to take advantage of growth opportunities in Africa and plans a secondary listing on the Johannesburg Stock Exchange, the company said.
“It is a vote of confidence in South Africa and the African continent,” said financial director Anastasis Stamoulis in a conference call.
What Bloomberg Intelligence says:
Coca-Cola HBC’s $2.6 billion purchase of 75% of Coca-Cola Beverages Africa deepens its presence in a region with young, rapidly growing urban populations and long-term potential. The deal, financed with cash and the issuance of 5.47% of the shares to Gutsche Family Investments, raises leverage to the upper end of the range of 1.5 to 2.0 times net debt to EBITDA, and the cancellation of the share repurchase reinforces the near-term focus on strategic expansion rather than capital returns.
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—Duncan Fox, retail industry analyst at BI
Philipp Hugo Gutsche built his father’s business from a relatively small enterprise in the coastal city of Port Elizabeth, South Africa, through the acquisition of several Coca-Cola franchises in the country. Shortly after South Africa’s first democratic elections, the company joined the Coca-Cola Co. units in East Africa.
The family also operates a real estate investment company and a local dairy.
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At least two other billionaire families have emerged from the partnership with Coca-Cola to bottle the beverage giant’s products. The David-Leventis dynasty behind Coca-Cola HBC started a bottling business in Nigeria in 1951, which then grew to become a major partner of the US company in parts of Africa as well as Central and Eastern Europe.
The purchase will add 14 African markets to Coca-Cola HBC’s portfolio, allowing it to cover more than half of the continent’s population. The family, originally from Cyprus, now controls a stake valued at more than $4 billion in the London-listed company, according to Bloomberg data.
The Spanish Daurella family started their bottling business at a similar time to the David-Leventis dynasty. The Iberian family is the largest shareholder in Coca-Cola Europacific Partners Plc, which entered the UK’s FTSE 100 index earlier this year. Led by Sol Daurella, third generation of the Spanish dynasty, the family has a total net worth of at least US$8 billion, according to the Bloomberg Billionaires Index.
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Tuesday’s deal with Coca-Cola Beverages Africa includes an option for Coca-Cola HBC to buy the remainder of the company within six years.
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