Coca-Cola Amatil to consider $9.3 billion takeover offer from Coca-Cola Europe

Coca-Cola Amatil ASX CCL CCEP European Partners
Coca-Cola Amatil’s independent directors intend to unanimously recommend the proposed scheme, which offers $12.75 per share.

Iconic drinks giant Coca-Cola Amatil (ASX: CCL) has agreed to consider a $9.3 billion takeover bid from UK-based Coca-Cola European Partners (CCEP) for the acquisition of 69.2% of issued shares not owned by The Coca-Cola Company.

Amatil chairman Ilana Atlas said a committee of independent non-executive directors had “unanimously determined” that CCEP should proceed to due diligence and transaction documentation stage, with a view to presenting a binding proposal to the independent shareholders who own the equity being targeted by the takeover.

This is despite the offer price of $12.75 per share being lower than Amatil’s highest stock price this year of around $13 in February.

If due diligence and all other conditions are satisfied – including approval from the Foreign Investment Review Board – Ms Atlas said the group intends to recommend shareholders accept the bid.

The Coca-Cola Company has a 30.8% shareholding in Coca-Cola Amatil, as it does with each of its primary or “anchor” bottlers in the worldwide Coca-Cola system. Its shares in Amatil are also proposed to be acquired by CCEP separately, but on “less favourable terms”, according to today’s ASX announcement.

The remaining 69.2% equity in Amatil is held by the independent shareholders.

The company operates in Australia, New Zealand, Indonesia, Papua New Guinea, Fiji and Samoa.

If CCEP’s takeover deal gets the green light, it will put ownership of one of the largest bottlers of non-alcoholic, ready-to-drink beverages in the Asia Pacific region into foreign hands, giving CCEP an even larger international footprint and immediate scale in the Southern Hemisphere.

Bid details

CCEP’s all-cash offer is for $12.75 per share by way of scheme of arrangement, representing a premium of 23% to the one week weighted volume average price of Coca-Cola Amatil shares.

The price also represents a multiple of 12 times Coca-Cola Amatil’s underlying 2019 earnings before interest, tax, depreciation and amortisation.

CCEP intends to enter into a separate agreement to acquire all of The Coca-Cola Company’s shares in Amatil in two or more tranches and on less favourable terms, including cash of $9.57 a share for 10.8% of its stake plus the balance in CCEP shares.

Earlier proposals

The Coca-Cola Amatil bid follows a number of earlier proposals by CCEP, which were rejected by the company.

The first approach was made in early 2019 and talks continued until mid-year.

CCEP contacted Coca-Cola Amatil again in September this year.

“CCEP has been interested in us for quite a long period of time,” Ms Atlas said.

“The proposals have been non-binding and confidential and the current [one] is the best we have received in terms of price and conditionality.”

Merged beginnings

CCEP was formed in 2016 through the merger of the bottling operations of Coca-Cola Enterprises, Coca-Cola Iberian Partners and Coca-Cola Erfrischungsgetranke.

Today, it is a leading consumer goods company, a strategic bottling partner to The Coca-Cola Company in Western Europe, and the world’s largest independent Coca-Cola bottler by revenue.

It makes, sells and distributes non-alcoholic drinks to over 300 million consumers in 13 countries.

CCEP is publicly listed on stock exchanges in Amsterdam, New York, Madrid and London, with corporate headquarters in London, United Kingdom.

The company has a current market capitalisation of approximately $25 billion.

Group quarterly results

Amatil Group managing director Alison Watkins said relaxed COVID-19 restrictions had helped improve trade in the third quarter of the 2020 financial year.

The company had a hard time during the pandemic as restaurant closures impacted sales.

“It is pleasing to report that we are seeing earnings momentum return in markets where COVID-19 trading restrictions have eased,” Ms Watkins said.

“This has particularly been the case in Western Australia and New Zealand, which have both delivered growth during the quarter, providing insight on the expected shape of the recovery that can be expected in other states where restrictions have been slower to ease.”

Group trading revenue was down 4.2% for the quarter, signalling an improvement on the decline of 9.2% reported in the company’s half-yearly results.

Group volume was down just 5.4% – an improvement on the 11.6% decline reported at half-year and a significant improvement on the April decline of 33%.

“It is pleasing to see the improvement in revenue momentum despite the reinstatement of lockdown restrictions in Victoria and Auckland for a significant part of the quarter,” Ms Watkins said.

“This momentum has continued in the first three weeks of October with our Australia and New Zealand businesses both delivering volume growth of +1.5% and +1.8% respectively.”

Cost savings

Amatil’s cost efficiency program in response to COVID-19 is on track to deliver $140 million of savings this financial year, including $20 million of direct marketing expenditure, of which approximately $60 million is expected to be recurring in nature.

In addition, the company’s recently launched ‘Fighting Fit’ program to accelerate additional productivity initiatives is expected to deliver $85 million of further savings through to the 2022 financial year.

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