Friday’s vote by shareholders of Coca-Cola Amatil to accept Coca-Cola European Partners’ $9.8bn takeover will mark the end of an era, as yet another Australia-based food business is bought by a foreign company.
But in this case, as the company’s former chief executive Terry Davis points out, the deal may also help the local business by putting it together with a much larger European Coca-Cola affiliate, the London-based Coca-Cola European Partners.
Once one of the top 10 ASX listed companies, the company can trace its roots back to 1904 when it was founded as the British Tobacco company.
It expanded into the drinks business, steadily buying up local Coca-Cola bottlers, starting in 1964 when it bought Coca-Cola Bottlers (Perth). It listed on the ASX in 1972.
Over time, it expanded further into soft drinks, buying up more local Coca-Cola bottling groups and expanding as far as Europe and then into Asia and the Pacific.
In 1989 it sold what was then the WD & HO Wills tobacco business to British American Tobacco, concentrating purely on the food and drink business.
Around the same time, the Atlanta-based Coke bought its 30 per cent stake in the company.
The local group’s sometimes ambitious overseas expansion plans have had a chequered history, always sounding logical at the time, but never delivering the hoped for returns.
At one stage, in the 90s, the Australian company had Coca-Cola bottling operations in some 17 different countries, including Poland, Austria, Switzerland, Serbia and other parts of Europe.
But over time most of these were either spun off or sold, always proving much harder to make profitable and largely too much of a management challenge for an Australian-based company.
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That said, the company is now roughly the world’s fifth-largest Coca-Cola bottlers group, with a turnover of some $5bn and a portfolio of household drink brands with operations in Australia, New Zealand, Indonesia, Papua New Guinea, Fiji and Samoa.
But in recent years its local shareholders have faced constant challenges for growth. The company has sold out of its operations in South Korea and the Philippines and in more recent times, under Alison Watkins, has sold down its interests in Indonesia.
Davis’s bold plans to expand into fruit and fruit juice with the $700m bid for SPC Ardmona, aimed at expanding its footprint in healthier products, proved disastrous, with the business sold off for a fraction of the price to private investors in 2019.
Observers have always sensed there has been an institutional tension, with Atlanta-based Coke wanting a strong focus on selling its products, while the Australian company was keen to diversify into products such as alcohol, fruit, fruit juice and coffee as it looked for expansion.
Some say Atlanta has never been comfortable with the combination of soft drinks and alcohol although Davis disputes this, saying that there are other soft drink groups around the world which also sell alcoholic drinks.
He also argues that there are many similar customers for both soft drinks and alcoholic drinks.
But there are institutional limits to what management can do with any diversification plans.
And some argue that, looking ahead, “ESG” pressure may see the Coke business look at more separation from alcohol.
While moves made by the local company ad to be approved by Atlanta, the relationship where the US company held just over 30 per cent allowed it to have a strong say in its growth plans.
Concerns about sugar-based soft drinks, given the global worries about obesity, and a fiercely competitive local market, had created constant headwinds for whoever is leading the company.
Its growth in Australia has been slow, with analysts not seeing a major upside as a listed ASX company.
There is a view that Atlanta, at the least, has been a strong supporter of the bid, which will see two off its major offshore distributor arms come together.
Some believe that its desire to have more of a say in how the Australian operations were run may have been a factor behind the deal going ahead on the first place.
The CEO of Coca-Cola European Partners, Irishman Damian Gammell, is a veteran of the offshore Coca-Cola business.
He started in the Irish business in 1991, before moving to Russia, where he was CEO of operations until 2004. He then moved to Sydney and later back to Europe, running the Coke business in Germany for five years.
The company he now runs was formed from a merger of the three main Coca-Cola bottling companies in Western Europe in 2016, and was listed in London in 2019.
In short, Gammell is a veteran of the business with a long history of combining the challenges of dealing with Atlanta and representing local bottling interests.
The deal represents another major step in the consolidation of the global Coca-Cola brand.
As the Australian Shareholders Association’s Roger Ashley points out, Atlanta’s strong support for the deal means that Australian shareholders have little option but to accept the offer.
Investment banker and agribusiness specialist David Williams said the deal was part of a global trend for internationalisation of the food and drinks business.
“In some way, it makes sense for the Coke business to be under a larger umbrella,” he said.
But he worries that as businesses globalise, the keenness to invest in local food will reduce.
Global companies, as he says, look for global brands to promote and are less interested in little known local brands.
He wonders what might happen to some of CCA’s more local brands under its new ownership.
There has been speculation, which has been denied, that Pepsi has also been looking to sell off some of its local businesses.
“We are seeing everywhere a push toward internationalising of brands and jettisoning of local brands,” he said of the industry.
“The consequence is not only the sale of local brands but a withdrawal of funds for business development on a local level.”
Further restructuring will no doubt be ahead once Gammell gets to oversee the Australian business. But for CCA shareholders it is the end of an era.