SMC sells stake in Coca-Cola Phils to US parent firm

Food and beverage giant San Miguel Corp. said yesterday it has reached an agreement with Atlanta-based Coca-Cola Co. regarding the sale of its 65 percent stake in Coca-Cola Bottlers Phils. Inc (CCBPI).

San Miguel made no mention of the agreed sale price but sources said the transaction might fetch between $700 million to $800 million.

In a statement, San Miguel said it has signed "a definitive agreement for the sale of its shareholding in CCBPI." Completion of the deal, however, is subject to certain conditions, the company added.

CCBPI is the jointly owned bottling company which holds the Coca-Cola bottling agreement for the Philippines and includes Cosmos Bottling Corp. and Philippine Beverage Partners, Inc. San Miguel is currently the majority shareholder and has management control of CCBPI.

CCBPI bottles leading soft drink brands such as Coke and Sprite in the Philippines and also sells distilled drinking water and powdered juices. It sells nearly nine in every 10 soft drinks in the country.

Analysts who attended San Miguel’s investors’ briefing last month said a deal would be finalized this January and would involve a non-compete clause that would prevent the Philippine company from selling carbonated drinks over the next five years.

Coca-Cola, which owns the remaining 35 percent of CCBPIand San Miguel, opened talks on the sale early this year. Their five-year bottler’s agreement, which covers royalty charges and bottling restrictions on Coke products, ended in July.

San Miguel obtained the franchise to bottle Coca-Cola products in 1927. The franchise was then sold to Australia-based Coca-Cola Amatil for $2.7 billion worth of Coca-Cola Amatil’s shares. San Miguel re-acquired the franchise – with Atlanta-based Coca-Cola Co. – for $1.2 billion of stock, cash and assumed debt in 2001.

San Miguel’s profit last year was dragged down by CCBPI’s losses, while Coca-Cola booked an impairment charge of around $84 million, or nearly a third of the $268 million carrying value of its trademarks with CCBPI.

CCBPI has suffered from declining sales volume as consumer slowly turn to non-carbonated drinks like fruit juice and iced tea.

In 2005, its sales volume fell eight percent on year to 520 million cases, leading to a seven percent decline in CCBPI’s revenue to P39.8 billion and a 63 percent drop in operating income to P1.2 billion.

In the nine months ending September this year, CCBPI’s sales recorded a four percent drop.

CCBPI’s products have been losing ground to other beverage makers such as the Gokongwei-owned food and beverage unit Universal Robina Corp.’s C2, other tea-based drinks, and to the much cheaper and traditional rival Pepsi.

Analysts said San Miguel’s divestment of its shareholdings in CCBPI will allow Southeast Asia’s biggest food and beverage conglomerate to raise funding for more acquisitions and allow it to concentrate on its bread-and-butter business which is beer.

The sale is also seen to increase Coca-Cola’s share of the Philippine bottling market and re-assert its market dominance.

Dominant in the domestic beer, soft drinks, dairy, processed food and poultry markets, San Miguel has expanded aggressively in Asia to reduce its reliance on the Philippines. Last year, it bought dairy giant National Foods for $1.5 billion and took over juice maker Berri Ltd, both based in Australia.

It also has operations in China, Australia, Indonesia, Vietnam and Thailand.