Rumours of a potential takeover of Coca-Cola Amatil Ltd (ASX: CCL) have once again been ignited by a report from The Australian Financial Review. The article suggests that SABMiller could be running the ruler over the beverage manufacturer in order to take advantage of its multi-year low share price.
Indeed, Coca-Cola Amatil has had a dreadful run over the last two-and-a-half years. During that time, its shares have slipped from an all-time high of $15.43 to a low of just $8.17, recorded just under a fortnight ago. The shares are now trading for $8.57 – a decline of 44.5% since March 2013.
The issues have largely related to the tougher competitive environment within the sector, whereby Schweppes has stolen market share through lower prices. At the same time, Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES) – have applied enormous pricing pressure, resulting in lower earnings from the group's Australian division. The Indonesian market has also been a huge problem for management to contend with.
Ms Alison Watkins, who replaced Terry Davis as Managing Director in March 2014, has made progress in her quest to improve efficiencies and turn the business around, but investors still aren't confident about the company's future.
A takeover target
SABMiller, which is the world's second-biggest brewer, has already signed a deal with The Coca-Cola Company and the African bottler, Coca-Cola SABCO, to create the biggest Coke bottler in Africa. Now, the headwinds facing Coca-Cola Amatil could provide SABMiller the opportunity to launch a bid for the Australian company which would also allow it to bottle Coke products in New Zealand, Indonesia, Fiji, Samoa and Papua New Guinee.
The Australian Financial Review also highlighted that SABMiller may be interested in acquiring Coca-Cola Amatil as a strategy to protect itself from becoming a takeover target of the world's largest brewer, Anheuser-Busch InBev, or AB InBev. AB InBev has bottling relationships with Pepsi so a tie-up with Coca-Cola Amatil could create regulatory issues for a takeover approach from AB InBev.
As it stands, Coca-Cola Amatil Ltd is trading on a trailing price-earnings ratio of 17.4x, and around 7.1x trailing earnings before interest, tax, depreciation and amortisation (EBITDA). With earnings set to improve over the coming years, now could be a very reasonable time for SABMiller (or individual investors) to make their move.
