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Did Coca-Cola Amatil Ltd get it right on Indonesia?

Coca-Cola Amatil Ltd (ASX: CCL) yesterday outlined its intentions to sell a 29.4% equity stake in its Indonesian business to parent entity The Coca-Cola Company (TCCC). The news was well received by investors and the shares gained 4.5% for the day as a result.

Investors can look at the deal in two ways…

First of all they will lose nearly one third of the business that they were for so long promised would be the company’s primary driver of growth over the coming decade as its Australian and New Zealand divisions slowed down. Indeed, with such a huge population and an emerging middle class, Indonesia was looking promising.

But things didn’t work out quite as had been planned. Competition in the market, as well as wage inflation and tough economic conditions in general, has resulted in lacklustre growth at best.

The other way to see the deal with TCCC is as an opportunity to start afresh. With US$500 million to be injected into the business by TCCC over the next few years, Coca-Cola Amatil can use the funds to accelerate expansion of production, warehousing and cold drink infrastructure in the market and capitalise on the opportunity in front of it.

Considering how poor the Indonesian investment has turned out to be thus far, Australian investors may have been very reluctant to contribute any more capital to investing in the Indonesian business. While shareholders will own a smaller stake should the TCCC deal go ahead, it is also likely they will recognise more bang for their buck as a result.

As President, Coca-Cola International, Ahmet Bozer put it: “This investment will allow us to capture the growth opportunity in one of the largest and most dynamic countries in the world as we enable our system to be even more responsive to consumer and customer needs.”

At $9.15 per share, Coca-Cola Amatil is still presenting as a very compelling buy and offers a nice forecast yield of 4.6%, franked to 75%. Speaking of nice dividends, the Motley Fool's top investment advisor has just named his #1 Dividend Pick for 2014 - 2015 which is well worth checking out.

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Motley Fool contributor Ryan Newman owns shares in Coca-Cola Amatil Ltd.

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