SMC, Coke buy LTDI’s non-liquor businesses

San Miguel Corp. (SMC) and Atlanta-based The Coca-Cola Co. (TCCC) have acquired La Tondeña Distillers Inc.’s (LTDI) water and juice brands for $141 million, fortifying the food and beverage giant’s leadership in the local beverage market.

SMC and TCCC will transfer these businesses to Coca-Cola Bottlers Philippines Inc. (CCBPI) which they had agreed to purchase from Australia’s Coca-Cola Amatil.

"We recognize that the competitive landscape in the water and juice segments is likely to change significantly in the next few years and we intend to maintain our leading position in those businesses," SMC chairman and CEO Eduardo Cojuangco Jr. said.

"By aligning our non-liquor interests, we will be well positioned to capture the industry’s growth prospects. By associating our water and juice brands with Coca-Cola, one of the world’s most recognized brand names and a company which is also aggressively growing its non-carbonated beverage portfolio, we will face the market more capable, stronger player than we are today," Cojuangco said.

The $141-million deal, expected to be finalized by the fourth quarter of 2001, is inclusive of SMC’s 49-percent ownership in Sugarland. LTDI, a 67 percent subsidiary of SMC, will retain its Jelly Ace brand of gelatin-based fruit snacks.

LTDI president Enrique Gomez said the valuation reflects a fair and full value for LTDI’s water and juice businesses as this translates to a 1.7 times enterprise value to sales and 15.7 times EBITDA (earnings before interest, taxes, depreciation, amortization).

Furthermore, he said the deal represents a 50 percent internal rate of return since the company entered these segments and acquired both Metro Bottled Water Corp. and Sugarland Beverage Corp.

Under the new set-up, the non-liquor business of SMC will have more operational focus to address intensifying competition and the increasing trade development requirements.

Consolidation

The realignment of the non-liquor businesses into a separate entity was cemented by SMC’s just-concluded $1.24 billion buyback of 65 percent of CCBPI. The remaining 35 percent stake in CCBPI is held by TCCC.

Gomez said SMC and TCC have agreed to pay full value due to the "enormous synergies they expect from the complementary nature of our products and brands and the potential to grow horizontally by integrating our non-liquor business with CCBPI’s distribution infrastructure."

Although LTDI’s water and juice segments contribute 27 percent to total revenues, the company remains anchored on its hard liquor line which is its solid growth driver making up 73 percent of total sales.

LTDIs wines and spirit line boast of the flagship Ginebra San Miguel, Anejo Rum, Vino Kulafu, Tondena Manila Rum, Oxford London Dry Gin, San Miguel Bravo Rum and Cordial Lime Juice.

Because of the deal, LTDI will give up the Magnolia brands of fruit drinks, Zip Juice Drink, Eight O’Clock, Ponkana, Ice Cold Mixers and the bottled water brands Viva!, First and Wilkins.