News broke on Bloomberg on Sunday that Coca-Cola Amatil Ltd (ASX: CCL) may be the subject of a $10 billion takeover bid by Coca-Cola European Partners PLC (NYSE: CCEP), the largest independent bottler of Coke. Discussions are rumoured to be in an advanced stage, to the point where an announcement is possible as early as today. The proposed deal would include the current Coca-Cola Amatil market capitalisation of $7.6 billion, plus $1.73 billion in net debt the company owed as of 30 June.
M&A speculation
On Thursday last week, the Coca-Cola Amatil share price jumped on the back of speculation the company was looking at a significant capital raising. The beverage producer then called a trading halt on Friday, ahead of a "potential material transaction".
Two groups of assets were included in this speculation. The first is a range of brands Japanese brewer, Asahi, has to divest of. This is to satisfy the ACCC after its acquisition of Carlton Breweries. Moreover, Coca-Cola had been in negotiations to buy high profile beer brands from Asahi some time ago.
The second is the Lion Dairy & Drinks business. Apparently, Bega Cheese Ltd (ASX: BGA) and Coca-Cola Amatil are frontrunners in the deal. However, there has been a plot twist over the weekend. Even if these deals are still on the cards, the potential $10 billion plus deal dwarves them.
Why Coca-Cola Amatil?
According to its website, Coca-Cola Amatil has 32 production facilities in Australia, New Zealand, Fiji, Indonesia and Papua New Guinea. This makes it one of the largest bottlers and distributors of ready-to-drink beverages in the Asia Pacific region. In addition, the Asia Pacific region is less impacted than Europe by the pandemic.
Moreover, Bloomberg has pointed out that soft drink bottlers are under pressure to consolidate due to a reduction in popularity of sugary drinks. In addition, Coca-Cola European Partners decided early this year to halt its buyback program and defer a dividend to preserve cash. This was directly due to the impact of coronavirus on European markets. Bloomberg has also stated this will be the largest merger involving an Australian company this year.
The company hasn't disclosed the deal structure. However, it may cover an acquisition or merger, a majority stake, or even sales of Coca-Cola Amatil assets within the region.
