SMC sells 65% stake in Coca-Cola Phils to mother unit for $590M

Food and beverage giant San Miguel Corp. (SMC) has sold its 65-percent stake in softdrink unit Coca-Cola Bottlers Phils. Inc. (CCBPI) to Atlanta-based parent Coca-Cola Co. for $590 million, much lower than what analysts earlier estimated could be worth between $700 million to $800 million.

In a disclosure to the Philippine Stock Exchange yesterday, San Miguel said the aggregate offer price is still subject to adjustments, if any, resulting from the completion of the closing accounts of the CCBPI group of companies and compliance by San Miguel and Coca-Cola Co. with the provisions of the transition service agreement and cooperation agreement.

"The parties agreed to a transition service agreement whereby the company will continue to provide Coca-Cola Co. with certain agreed upon services for a maximum of 18 months to enable Coca-Cola Co. to assume management of CCBPI," San Miguel said.

The agreement also involves a non-compete clause that prevents San Miguel from selling carbonated drinks, sports drinks, energy drinks and/or flavored water for a period of five years from closing of the deal.

San Miguel has also committed not to engage in the business of producing, for itself and for certain competitors of Coca-Cola, non-alcoholic beverages anywhere in the world for a period of three years from closing and in the Philippines for five years.

The conglomerate said it decided to divest of CCBPI to provide it with longer term commercial flexibility.

CCBPI, the jointly owned bottling company which holds the Coca-Cola bottling agreement for the Philippines and includes Cosmos Bottling Corp. and Philippine Beverage Partners, Inc., bottles leading softdrink brands such as Coke and Sprite in the Philippines and also sells distilled drinking water and powdered juices. It sells nearly nine in every 10 soft drinks in the country.

Coca-Cola, which owns the remaining 35 percent of CCBPI,opened talks on the sale early this year. Their five-year bottler’s agreement, which covers royalty charges and bottling restrictions on Coke products, ended in July. San Miguel obtained the franchise to bottle Coca-Cola products in 1927.

The franchise was then sold to Australia-based Coca-Cola Amatil for $2.7 billion worth of Coca-Cola Amatil’s shares. San Miguel re-acquired the franchise – with Atlanta-based Coca-Cola Co. – for $1.2 billion of stock, cash and assumed debt in 2001.

San Miguel’s profit last year was dragged down by CCBPI’s losses, while Coca-Cola booked an impairment charge of around $84 million, or nearly a third of the $268 million carrying value of its trademarks with CCBPI.

CCBPI has suffered from declining sales volume as more consumers turn to non-carbonated drinks like fruit juice and iced-tea. In 2005, its sales volume fell eight percent on year to 520 million cases, leading to a seven percent decline in CCBPI’s revenue to P39.8 billion and a 63 percent drop in operating income to P1.2 billion. In the nine months ending September this year, CCBPI’s sales saw a four percent drop.

Analysts said San Miguel’s divestment of its shareholdings in CCBPI will allow Southeast Asia’s biggest food and beverage conglomerate to raise funding for its acquisitions and allow it to concentrate on its bread and butter business which is beer. The sale is also seen to increase Coca-Cola’s share of the Philippine bottling market and its influence.

Dominant in the domestic beer, softdrinks, dairy, processed food and poultry markets, San Miguel has expanded aggressively in Asia to reduce its reliance on the Philippines. Last year, it bought dairy giant National Foods for US$1.5 billion and took over juice maker Berri Ltd, both based in Australia.