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Does Coca-Cola Amatil Ltd face competition from Suntory?

Coca-Cola Amatil Ltd (ASX: CCL) released a statement on Tuesday noting that its arrangements with spirits company Beam Inc. will remain unaffected for at least a decade, despite Beam’s recent buyout by Japanese brewing and distilling company Suntory Holdings Limited.

Coca-Cola Amatil noted that “provisions of the long-term agreement” between Beam and itself ensure no adverse effects through at least December 2023, when the arrangement expires.

Good or bad news?

Suntory’s acquisition came as a bit of a surprise to the market. At $US16 billion, the deal wasn’t cheap for the Japanese company. Beam’s valuation makes it the fourth-highest spirits takeover multiple in the past 10 years, according to Bloomberg. Suntory has been gunning for global growth, and Beam presented itself as an opportunity the company couldn’t refuse.

For Coca-Cola Amatil investors, that’s an important statement. The company announced its latest 10-year deal with Beam last December, paving the way for new alcohol distribution channels. With Suntory in the mix, Coca-Cola Amatil has been dealt an entirely different hand.

Things could turn out well for Coca-Cola Amatil if Suntory decides to add on its own products to Coca-Cola Amatil’s distribution. Currently, the Japanese company has its own Australian distribution channels, but it could be looking for all the help it can get as it carries the financial burden of its Beam buyout.

But Suntory bought Beam with global growth in mind, and the family-run business might not be keen to give its newly gained ground away. The acquisition propels Suntory from the fifteenth-largest liquor company to fourth, a move that makes it a more formidable competitor than ever with Coca-Cola Amatil’s new liquor focus.

Foolish takeaway

It’s too early to know how Suntory’s expansion will ultimately play out. For the moment, Coca-Cola Amatil investors can rest easy that its 2023 Beam deal remains strong. In the coming months and years, Suntory’s Australian intentions should come to light, and investors will need to weigh Coca Cola Amatil’s reaction against their own investment case.

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Motley Fool contributor Justin Loiseau has no position in any stocks mentioned in this article. You can follow him on Twitter @TMFJLo.

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