Coca-Cola Co. has agreed to buy Nigeria's largest juice maker,
accelerating its push into Africa and deepening its diversification
drive in response to slowing soda sales.
Coke said Saturday it acquired an initial 40% stake in TGI
Group's Chi Ltd., which also sells dairy and snacks, and intends to
buy the remaining 60% within three years. The deal values Chi at a
little less than $1 billion, according to a person familiar with
the matter.
The investment in Africa's largest economy represents Coke's
biggest overseas acquisition since 2012, when it paid roughly $980
million to buy roughly half of Dubai-based Aujan Industries, a
leading maker of juice and malt beverages in the Middle East.
The Atlanta-based beverage giant increasingly is targeting
Africa for growth amid sluggish sales in more-developed markets.
Coke said in 2014 it would invest $17 billion in the continent this
decade with bottling partners, roughly three times as much as in
the previous decade.
It also signals a redoubled effort to expand beyond core soda
brands including Coke, Sprite and Fanta at a time when health
authorities in many parts of the world are singling out sugary
drinks for contributing to rising obesity and diabetes.
This week a World Health Organization commission recommended
that governments consider special taxes on sugar-sweetened
beverages, following the example of Mexico, which introduced levies
on soda and junk food in 2014. The commission estimated the number
of overweight children younger than 5 in Africa has nearly doubled
to 10.3 million since 1990.
Coke had a 45% share of the $18.12 billion soda market in the
Middle East and Africa last year, but only 3.5% of the region's
fragmented $8.03 billion juice market. Closely held TGI was the No.
2 juice player behind Iran-based Alifard Co., with a 4.2% market
share and $337 million in retail sales, according to Euromonitor
International.
In addition to its Chi and Chivita juice brands, TGI's Chi Ltd.
sells evaporated milk and drinkable yogurt under the Hollandia
brand and snack foods including Muff the Muffins and Beefie Beef
Rolls.
"We are extremely optimistic about Africa's continued economic
and social growth and recognize the importance of ensuring we stay
one step ahead of evolving consumer tastes by broadening our
portfolio and introducing new products," said Kelvin Balogun,
president of Coca-Cola Central, East and West Africa, in a news
release.
Coke and TGI, also known as Tropical General Investment, said
they would discuss other opportunities in the region to further
develop their relationship. TGI owns several other companies
ranging from poultry and fish farming to frozen foods and cotton.
Its businesses span a dozen countries, including South Africa,
Morocco and China.
A Coke spokesman declined to elaborate on potential
opportunities, but reiterated that Coke's strategic focus remains
beverages.
The deal comes amid uncertainty over Coke's soda-bottling
partnerships in Africa after brewer Anheuser-Busch InBev NV agreed
last October to acquire SABMiller PLC, which bottles and
distributes Coke in South Africa and several other markets. AB
InBev is a bottler in Latin America for PepsiCo Inc., Coke's chief
rival. Many industry observers also say AB InBev eventually could
try to acquire Coke.
Coke agreed in late 2014 to combine bottling assets with
SABMiller and privately held Gutsche Family Investments to create a
joint venture spanning 12 African countries and about 40% of Coke's
soft-drink volumes on the continent. The venture is expected to
secure regulatory approval in the first half of this year after
South African authorities held it up over job-loss concerns.
As part of that bottling deal, Coke also agreed to pay $260
million for the world-wide rights to SABMiller's Appletiser, a
carbonated apple juice, and the rights to another 19 nonalcoholic
brands in Africa and Latin America.
Coke still derives about 70% of its global sales from soda
despite a decadeslong push into noncarbonated beverages including
bottled water, juice and tea. The company's soda volumes grew only
1% in the first nine months of 2015, compared with 4% growth for
its noncarbonated beverages.
In another diversification move, Coke agreed last April to
acquire China Culiangwang Beverages Holdings Ltd. for about $400
million including debt. Culiangwang specializes in "multigrain
beverages" with flavors such as red bean, walnut and oats, in
addition to selling snacks, biscuits and cereals.
Coke also has built up a small dairy business, teaming last year
with bottling partner Arca Continental to acquire the majority of
Ecuadorean dairy company Tonicorp. The company also has reported
growth from brands including Minute Maid Pulpy Super Milky, a mix
of juice and milk developed in China, and Santa Clara, which makes
yogurt and other dairy products in Mexico. It launched Fairlife, a
lactose-free milk with 50% more protein and 30% fewer calories than
regular milk, in the U.S. in late 2014.
Last June Coke paid $2.15 billion to acquire a 16.7% stake in
California-based Monster Beverage Corp., the largest maker of
energy drinks in the U.S. by volume, also securing rights to become
Monster's preferred distributor overseas.
Muhtar Kent, Coke's chief executive, said last October that the
company would continue to seek "bolt-on'" acquisitions to grow and
diversify.
Many Coke watchers think overseas deals are more likely. About
90% of Coke's $19.16 billion in cash and short-term investments
were parked outside the U.S. at the end of the third quarter,
helping it avoid repatriation taxes.
Write to Mike Esterl at mike.esterl@wsj.com
(END) Dow Jones Newswires
January 31, 2016 19:35 ET (00:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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