Delta’s choices over potential Coca-Cola exit

Delta is faced with three choices following a decision by the Coca-Cola Company (TCCC) to terminate the Bottlers’ Agreements with Delta Beverages and its associate Schweppes Holdings Africa, analysts say.

On October 10 2016, TCCC said it planned to buy-out Anheuser-Busch InBev (ABI)’s stake in Coca-Cola Beverages Africa (CCBA) after ABI acquired rival SABMiller.

SABMiller is a major bottler of Coca-Cola products in Africa, while AB InBev is a similarly major bottler of rival Pepsi in South America.

Coca Cola’s bid to end the bottlers’ agreements with Delta and Schweppes follows the regulatory approval of the $104 billion merger between Anheuser-Busch InBev NV/SA (AB InBev) and SABMiller Plc, Delta’s largest single shareholder with 38 percent.

Delta is a 49 percent shareholder in Schweppes Zimbabwe.

TCCC, which formed Coca-Cola Beverages Africa (CCBA) along with SABMiller and the South African owners of bottler Coca-Cola Sabco in 2014, had retained the right to buy SABMiller’s stake in the event of a change of control at the brewer.

For Delta, an associate of ABI, the acquisition by TCCC of ABI interests in CCBA or any resultant deal from the negotiations could provide a clearer path for local assets.

In a research note, a regional stockbroking firm noted that possible options for Delta Corporation could include: Delta and Schweppes proceeding with the termination of the Bottlers’ Agreement and enter into an agreement with TCCC’s competition or go it alone. However this is likely to be disruptive and would not create value for all parties, including minorities.

Another option could be for Delta to demerge its sparkling beverages unit and merge it with Schweppes, with ABI eventually selling its stake in the enlarged non-alcoholic beverages company to TCCC or TCCC’s bottling partners. This is a move which analysts feel could potentially offer value to all parties.

If the status quo is maintained, given that Delta is an associate of ABI, TCCC might be comfortable with the arrangement for as long as there is no ABI influence on Delta Beverages and Schweppes Holdings.

The board of directors of Delta will evaluate the options and settle for a scenario which protects the company and its shareholders. As such, given the contribution of the sparkling beverages to Delta product mix of almost a third, any transactions will require shareholder approval.

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