Tea Deal Brewing

Coca-Cola could acquire Arizona Beverages

ATLANTA -- Arizona Beverages' iced teas and other drinks may soon be part of Coca-Cola's lineup, according to a report by The Atlanta Journal-Constitution.

Coca-Cola, looking for products for health-conscious consumers, is in preliminary talks with Arizona Beverages about a deal, which could end up as either an outright acquisition or a distribution deal, said the newspaper, citing reports in Beverage Business Insights and Beverage Digest.

Both Coca-Cola and Arizona Beverages declined to comment. Beverage Digest quoted an unnamed [image-nocss] source as saying chances of a deal are "at best 50-50." A deal would be complicated by an existing partnership that Coca-Cola has with Nestl a to jointly sell tea products, the report said.

The rumored companies' discussions come as sales of regular colas are declining, and big beverage makers are looking broadly for products to appeal to today's health-conscious consumers, said the report. In addition to its discussions with Arizona Beverages, Coca-Cola is considering adding a tea called Enviga, designed to promote weight loss, which could launch next year, Beverage Digest reported. Coke spokesperson Ben Deutsch declined to comment on Enviga.

Generally, Pepsi has been more successful than Coca-Cola in finding alternatives to regular colas, the Journal-Constitution said, and tea is no exception. Pepsi is the leader in tea, with 28% of the U.S. retail market, the report said, citing Beverage Digest. Pepsi's lineup includes Lipton and SoBe drinks. Pepsi has recently added more Lipton flavors, with marketing that focuses on the healthful benefits of tea.

Arizona is the No. 2 tea player, with 27% of the market. Next is Cadbury Schweppes with Snapple. Coca-Cola, which distributes Nestea products, is fourth.

Morgan Stanley beverage analyst Bill Pecoriello said Arizona Beverages would be a "good fit" for Coca-Cola. "Adding Arizona to the Coke system would make it the category leader and would likely open up a broader set of innovation opportunities," he wrote in a research note cited by the newspaper.