ATLANTA & WHITESTONE, N.Y. -- The Coca-Cola Co. said it has reached an agreement to acquire Energy Brands Inc., known as Glacéau, and its full line of enhanced water brands, including vitaminwater. The acquisition, for $4.1 billion in cash, provides Coca-Cola with a platform to grow its active-lifestyle beverages.
Whitestone, N.Y.-based Glacéau will operate as a separate business unit within Coca-Cola North America (CCNA). This structure will allow Glacéau to continue to maximize its focus, speed, sales and execution capabilities, while leveraging the scale of CCNA's resources in supply chain, marketing and consumer insights, large-customer management and foodservice.
glac aau has built a great business with high-quality growth, as well as a strong pipeline of innovative products and brands. We envision even faster growth for Glacéau as part of Coca-Cola's enhanced range of brands for North American customers and consumers, said Neville Isdell, chairman and CEO of Coca-Cola, Atlanta.
"This is an outstanding opportunity for both of our companies to build an expanded active-lifestyle business, first in the United States and then around the world," said Muhtar Kent, president and COO of Coca-Cola. "It sharpens our existing focus on re-establishing sustainable growth in our home market, strengthening our system and leveraging acquisition opportunities to gain speed and capabilities in key categories. We're committed to winning by reigniting growth in our core business of sparkling beverages while becoming the fastest-growing still-beverage company in North America."
He added, "Glacéau and its brands also provide us with highly attractive longer-term international opportunities. We look forward to discussing with glac aau's distributors and our bottling partners the best operating model for glac aau's routes to market."
With its vitaminwater, smartwater, fruitwater and vitaminenergy brands, Glacéau is well-positioned in key market categories, Coca-Cola said, with a leading position in enhanced water and attractive brands in water and energy drinks.
It's a perfect match connecting the hottest active lifestyle brand with the full resources of the world's best beverage company, said J. Darius Bikoff, Glacéau founder and CEO.
Coca-Cola said glac aau's top three executives Bikoff, Mike Repole and Mike Venutiintend to lead the business for a minimum of three years, and that other key managers will remain in the business.
Glacéau has a great and talented management team, whose brand building and creativity will complement and strengthen our business in North America, said Sandy Douglas, president and COO of CCNA.
The transaction, which is expected to close in the summer of 2007, is subject to customary regulatory review. The boards of both companies have approved the transaction.
Beverage stock analyst Bonnie Herzog of Citigroup said in a research note that the purchase is a move in the right direction for Coca-Cola. "Overall we believe this acquisition is positive and indicates [Coke's] increasing willingness to acquire growth and innovation," she wrote. "Overall, we believe Coke's innovation is on the right track for the most part, but also recognize that the company's new innovation pipeline exposes it to considerable execution risk."
It's the right play, Tom Pirko, president of beverage consultant Bevmark, told the New York Times. "When you look at what's happening with Coke, they can't innovate their way out. They have to buy their way out."
William Pecoriello, an analyst with Morgan Stanley, called the acquisition a potential game changer in the market for noncarbonated drinks.
It would fill a major gap in it's noncarb portfolio, he said in a research note.
According to the Times, while the price tag is substantial for a company with earnings in 2006 of about $350 million, analysts said the cost in avoiding the deal, given Coca-Cola's relatively weak position in noncarbonated beverages, could also be high.
It may also exorcise some ghosts in Coca-Cola's past, said the report. For the last decade or so, Coca-Cola, which has 43% of the soda market in the United States, compared with 31% for the rival PepsiCo, has lagged behind in introducing noncarbonated beverages. It was late in introducing bottled water to the market. And in 2000, its CEO signed a deal to buy Quaker Oats that included Gatorade, but the board turned him down. Quaker was then swept up by PepsiCo.
This year, PepsiCo's share of the noncarbonated beverage industry in the United States, which includes bottled water, sports drinks and juice was 50%. Coke's market share was 23%, according to the Times, citing Beverage Digest, which first reported the negotiations last month.
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