The FINANCIAL — Coca-Cola Enterprises, Inc. (“CCE”) , Coca-Cola Iberian Partners SA (“CCIP”) and Coca-Cola Erfrischungsgetränke AG (“CCEAG”), a wholly owned subsidiary of The Coca-Cola Company, announced on August 6, they have agreed to combine their businesses into a new company to be called Coca-Cola European Partners Plc., in a transformational transaction that will create the world’s largest independent Coca-Cola bottler based on net revenues. Through a world-class production, sales and distribution platform for the Coca-Cola system in Western Europe, Coca-Cola European Partners will be positioned to deliver superior execution and customer service, driving long-term value creation for shareowners.
Strategically Positioned to Capture Growth
With more than 50 bottling plants and approximately 27,000 associates, Coca-Cola European Partners will serve a consumer population of over 300 million in 13 countries across Western Europe, including Andorra, Belgium, France, Germany, Great Britain, Iceland, Luxembourg, Monaco, Norway, Portugal, Spain, Sweden and the Netherlands. The combined company will operate in the four largest markets for nonalcoholic ready-to-drink beverages in Western Europe – Germany, Spain, Great Britain and France.
Once combined, Coca-Cola European Partners will leverage and build on the best practices from each respective market and bottler to improve service to customers and consumers through a more consistent strategy for product development and market execution across Western Europe. The increased scale and flexibility of Coca-Cola European Partners’ broader European geographic footprint will allow it to compete more effectively across nonalcoholic beverage categories, according to Coca-Cola Company.
Coca-Cola European Partners is expected to generate substantial synergies, including supply chain benefits and operating efficiencies. These synergies are expected to result in realized annual run-rate pre-tax savings of approximately $350-375 million within three years of closing. The new company’s synergies will also position it for increased investment in sales and customer-facing activities to drive incremental top-line and profit growth over the long term.
Coca-Cola European Partners will combine the unique market knowledge of CCE, CCIP and CCEAG, enabling increased coordination and innovation to better serve customers and consumers at a local level in each market. As a larger and more diverse company, Coca-Cola European Partners will continue to invest, employ, manufacture and distribute locally, maintaining a strong commitment to the economic and social well-being of each community it serves.
“The creation of a larger, unified Coca-Cola bottling partner in Western Europe represents an important step in our global system’s evolution,” said Muhtar Kent, Chairman and Chief Executive Officer of The Coca-Cola Company. “We continue to adapt our business model to innovate, invest and grow along with the changing demands of the marketplace. With the strong leadership that will be assembled from across the three organizations, Coca-Cola European Partners will be well-positioned to deliver better and more effective service to customers throughout Western Europe and drive profitable growth across multiple beverage categories.”
Sol Daurella, Executive Chairwoman of Coca-Cola Iberian Partners, added, “In 2013, we combined our family-owned Iberian Coca-Cola bottlers with over 60 years of history to better serve our customers and consumers. Our Iberian shareowners see today’s announcement as an important step to further develop and optimize our offerings in Western Europe. As the single-largest shareowner in this new business we will play a strong strategic role in Coca-Cola European Partners, while continuing to be close to our country, business, local consumers and customers. Combining our unique expertise in the on-premise channels, targeted marketing experience and operational excellence with the skills of CCE and CCEAG, together we will drive growth in Western Europe.”
“The creation of Coca-Cola European Partners will build on each bottler’s capabilities to create more efficient operations in their respective markets across Western Europe,” said John Brock, Chairman and Chief Executive Officer of Coca-Cola Enterprises. “We look forward to bringing together our world-class supply chain and sales team with the distinct strengths offered by CCIP and CCEAG to capture additional growth opportunities in each market. This transaction offers clear synergies, along with the scale to better serve the needs of our customers and consumers in Western Europe, to become an even stronger partner to The Coca-Cola Company and create increased value for CCE’s shareowners.”
Management and Governance
Ms. Daurella will become Chairwoman of Coca-Cola European Partners and Mr. Brock will become Chief Executive Officer. Both will be members of the Board of Directors.
Damian Gammell, currently Beverage Group President and CEO of Anadolu Efes and a previous Chief Executive Officer of CCEAG, will join CCE as Chief Operating Officer in autumn 2015 and become Chief Operating Officer of Coca-Cola European Partners upon closing. Manik (“Nik”) Jhangiani, currently the Chief Financial Officer of CCE, will become Coca-Cola European Partners’ Chief Financial Officer and Víctor Rufart, currently General Manager of CCIP, will become Chief Integration Officer. Other members of the new executive team will be announced before the closing of the transaction.
Along with Ms. Daurella and Mr. Brock, the initial Board of Directors of Coca-Cola European Partners will consist of 15 additional members, with the majority of the Board being independent, non-executive directors.
Coca-Cola European Partners will be incorporated in the United Kingdom, one of its largest markets, with its headquarters in London. The combined company will be publicly traded with listings on the Euronext Amsterdam, the New York Stock Exchange and the Madrid Stock Exchange.
At closing, Coca-Cola Iberian Partners and The Coca-Cola Company will own 34% and 18% of the combined company, respectively, with CCE shareowners owning 48% on a fully diluted basis. CCE shareowners will receive, for each CCE share held, one share of Coca-Cola European Partners and a one-time cash payment of $14.50 per share. The aggregate one-time cash payment of approximately $3.3 billion will be funded by the new company using newly issued debt.
On a pre-synergy, pro forma basis, for 2015 the combined company’s annual net revenues are expected to be approximately $12.6 billion with $2.1 billion of EBITDA and $1.6 billion of operating income with a volume of 2.5 billion unit cases. Coca-Cola European Partners’ effective tax rate is expected to be in a range of 26 to 28%.
The combined company is expected to have a 2015 pro forma net debt to EBITDA ratio of approximately 3.5x, and given anticipated cash flows, is expected to de-lever to approximately 2.5x by year-end 2017. Coca-Cola European Partners is fully committed to an investment-grade rating and intends to operate within a 2.5x-3.0x net debt to EBITDA ratio longer term. It intends to distribute dividends per share in the range of approximately 30 to 40% of net income over time, to be determined by its Board of Directors.
The Coca-Cola Company expects to account for its stake under the equity method of accounting and expects the merger to be slightly accretive to 2016 comparable EPS.
In support of this growth plan, The Coca-Cola Company and Coca-Cola European Partners will enter into a new 10-year bottling agreement with an option to renew for an additional 10-year period. There will be an initial four-year incidence pricing agreement, extending economic terms currently in place in each respective territory.
The Boards of Directors of Coca-Cola Enterprises, Coca-Cola Iberian Partners and The
Coca-Cola Company have approved the transaction. The proposed merger is subject to approval by CCE’s shareowners, receipt of regulatory clearances and other customary conditions. The merger is expected to close in the second quarter of 2016.
Deutsche Bank acted as exclusive financial adviser to The Coca-Cola Company. Cleary Gottlieb Steen & Hamilton LLP acted as legal counsel to The Coca-Cola Company, and Skadden, Arps, Slate, Meagher & Flom LLP acted as tax counsel to The Coca-Cola Company.
Lazard acted as lead financial adviser to CCE and Cahill Gordon & Reindel LLP and Slaughter and May served as legal counsel to the company. Credit Suisse acted as financial adviser to the Franchise Relationship Committee (FRC) of the Board of Directors of CCE; Clay Long Esq. and Baker Hostetler LLP served as legal counsel to the FRC.
Rothschild acted as exclusive financial adviser to Coca-Cola Iberian Partners. Allen & Overy LLP and Uria Menendez served as legal counsel to Coca-Cola Iberian Partners.