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The choices facing Delta over potential Coca-Cola exit

28/10/2016 00:00:00
by Source.co.zw

HARARE: Delta is faced with three choices following a decision by the Coca-Cola Company (TCCC) to terminate the Bottlers’ Agreements with Delta Beverages and its associate Schweppes Holdings Africa, analysts say.

On October 10 2016, TCCC said it planned to buy-out Anheuser-Busch InBev (ABI)’s stake in Coca-Cola Beverages Africa (CCBA) after ABI acquired rival SABMiller.

SABMiller is a major bottler of Coca-Cola products in Africa, while AB InBev is a similarly major bottler of rival Pepsi in South America.

Coca Cola’s bid to end the bottlers’ agreements with Delta and Schweppes follows the regulatory approval of the $104 billion merger between Anheuser-Busch InBev NV/SA (AB InBev) and SABMiller Plc, Delta’s largest single shareholder with 38 percent.

Delta is a 49 percent shareholder in Schweppes Zimbabwe.

TCCC, which formed Coca-Cola Beverages Africa (CCBA) along with SABMiller and the South African owners of bottler Coca-Cola Sabco in 2014, had retained the right to buy SABMiller’s stake in the event of a change of control at the brewer.

For Delta, an associate of ABI, the acquisition by TCCC of ABI interests in CCBA or any resultant deal from the negotiations could provide a clearer path for local assets.

In a research note, a regional stockbroking firm noted that possible options for Delta Corporation could include: Delta and Schweppes proceeding with the termination of the Bottlers’ Agreement and enter into an agreement with TCCC’s competition or go it alone. However this is likely to be disruptive and would not create value for all parties, including minorities.

Another option could be for Delta to demerge its sparkling beverages unit and merge it with Schweppes, with ABI eventually selling its stake in the enlarged non-alcoholic beverages company to TCCC or TCCC’s bottling partners. This is a move which analysts feel could potentially offer value to all parties.

If the status quo is maintained, given that Delta is an associate of ABI, TCCC might be comfortable with the arrangement for as long as there is no ABI influence on Delta Beverages and Schweppes Holdings.

The board of directors of Delta will evaluate the options and settle for a scenario which protects the company and its shareholders. As such, given the contribution of the sparkling beverages to Delta product mix of almost a third, any transactions will require shareholder approval.


If handled and executed well, the transaction can have minimal effects on Delta’s shareholders. Nevertheless, what tempers with their enthusiasm is the fact that like any other transaction there can be complications.

Management will shed more light at the half-year 2017 results Analysts’ Briefing, although it may be early days for any meaningful clarity. Delta is set to release its half year financial results on Thursday, 10 November

Delta’s share price has declined by 13 percent from 84 cents last week to 73 cents on Thursday as the market responds to the news of a potential reduction in profitability.

Current developments

Coca-Cola The company will negotiate terms of the deal with AB InBev in the coming months and continue talks with potential partners to refranchise CCBA, which will then be followed by a regulatory approval process

ABI owns 57 percent of CCBA, Gutsche Family Investments 31.7 percent and TCCC 11.3 percent.

The bottler started production on July 4 this year.

CCBA accounts for about 40 percent of Coca-Cola’s African soft drink sales with revenues of approximately $3 billion. According to their agreement, TCCC retained its change of control clauses that would allow it to repurchase the bottling and distribution assets of SABMiller or sell it to another company

TCCC states that although it respects ABI’s competences, it has a number of existing partners who are highly qualified and interested in the bottling territories. This serves as a defensive strategy by TCCC since it can be seen as a potential target for acquisition.

Coca-Cola has been moving away from outright ownership of bottling assets, which are more capital intensive and lower-margin than selling syrup and marketing. This implies that there could be an opportunity for other bottlers to acquire the CCBA stake.

Analysts are of the view that, this is an indication that TCCC is not exiting Southern Africa where it has held a near monopoly. Furthermore, unwinding the African bottling operations could cause major disruptions in a fast growing market.

Zimbabwe alone is a $200 million beverage market, analysts noted.

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