Swire inches towards deal for $1bn Coke bottling assets

Bloomberg

Hong Kong conglomerate Swire Pacific Ltd. is nearing the acquisition of Coca-Cola bottling assets in China from a unit of state-owned food giant Cofco Corp., people with knowledge of the matter said.
Swire is close to an agreement to purchase stakes in Coca-Cola bottlers from Cofco’s China Foods Ltd. subsidiary, the people said, asking not to be identified as the information is private. The deal could value the businesses at about $1 billion, according to the people. An announcement may come as soon as this week, one of the people said.
The purchase comes as an emerging Chinese middle class gravitates toward foreign brands from fashion apparel to food and beverage products. China Foods said in August it was exploring the sale of its stakes in 10 Coca-Cola bottling companies in the country, including some operations that are joint ventures with Swire.
Negotiations could still fall apart or be delayed, the people said. Representatives for Swire and Atlanta-based Coca-Cola Co. declined to comment beyond earlier statements. A representative for China Foods didn’t immediately respond to a phone call and e-mail seeking comment.
Swire shares reversed gains to fall 0.1 percent as of 3:27 p.m. in Hong Kong trading, while China Foods pared earlier losses of as much as 3.7 percent to trade 0.5 percent lower.
“Bottling business won’t be a growth driver to Swire, but it offers yield and sustainable revenue to the firm,” said Linus Yip, a chief strategist at First Shanghai Securities. “To China Foods, it makes sense for them to offload some assets amid corporate restructuring.”
Coca-Cola in February announced plans to significantly speed up refranchising of its bottling operations, as it seeks to reduce exposure to facilities that are more capital-intensive and low-margin. The world’s largest soft-drink company that month signed a letter of intent to also refranchise its China bottling operations to China Foods and Swire.
China Foods said in August it would sell stakes varying from 7.15 percent to 100 percent in its bottling assets located mainly in the south of China such as in Hainan and Guangdong province, including some of its joint ventures with Swire. Its bottlers in north China, including in Beijing, Tianjin and Inner Mongolia, aren’t part of assets China Foods put up for sale in August.
The deal could leave Swire with a stronger hold on Coca-Cola bottling in the southern and central parts of China as the conglomerate’s 11 plants are mainly concentrated in the region, including in Henan, Guangdong and Fujian province. In the first half of the year, attributable profit from its China beverage business was HK$119 million, a 51 percent drop from a year ago due to the country’s economic slowdown.
For Swire, acquiring the China Foods assets would be part of its on-going effort to grow the bottling business.
The conglomerate, which operates businesses from real estate, aviation to shipping, said last month it agreed to buy Coca-Cola’s distribution and production assets in the states of Washington, Oregon and Idaho for $170.1 million.