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New $2.9bn Coca-Cola Africa giant formed

Nov 27 2014 12:24

Cape Town - SABMiller [JSE:SAB] and Coca-Cola will combine the operations which mix, bottle and distribute their soft drinks in Africa, creating a group with sales of $2.9bn and ambitions to corner a fast-growing market.

Coca-Cola Beverages Africa will be the continent's largest soft drinks bottler, accounting for 40% of all Coke volumes sold in Africa. It will serve 12 southern and eastern African countries, including South Africa.

The broader deal - which will also hand Coca-Cola an extra 20 brands, including Appletiser - will extend both firms' distribution networks and presence.

It comes as brewers like SABMiller bulk up on low-margin fizzy drinks in emerging markets, where soft drinks are outpacing more lucrative sales of beer. For SABMiller, bottling soft drinks may be less profitable than packaging beer, but it is also a cheaper way to grow.

"The idea behind the merger is to expand quicker, and over time we will look for more bottlers to acquire to grow the business further," said Mark Bowman, Africa head of SABMiller.

"The capital we would have spent today to expand our soft drinks business in Africa is probably half what we expect to spend in the future."

Coke and SABMiller did not say how much they expected to save with the deal.

Households in Africa's growing economies are finding themselves with more disposable income, which they are spending on what previously would have been considered luxuries.

Africa's consumer spending on shopping, banking, telecoms and tourism could grow to $978bn by 2020, from $570bn in 2010, according to McKinsey.

While many US and European companies are taking a serious look at Africa, both Coke and SABMiller are veterans. SABMiller was founded as South African Breweries, while Coke has built a distribution network that allows its drinks to reach tiny tuckshops in far-flung townships.

The all-equity deal pulls together SABMiller, Coke and Coke's South African bottling partner, the Gutsche family. SABMiller will own 57% of the group, Coke will hold 11.3% and the rest will be in the hands of the Gutsches.

As part of the deal, Coke will acquire SABMiller's sparkling soft drink Appletiser brands globally, and buy or be licensed for a further 19 non-alcoholic names in Africa and Latin America for about $260m.

SABMiller will retain its non-alcoholic malt beverages in Africa and Latin America and also keep Coke's franchises in El Salvador and Honduras.

* This article has been updated, adding more detail.

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sabmiller  |  coca cola  |  africa  |  investing

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