NewsOmatic

Coca-Cola Agrees to Buy Glaceau


The Coca-Cola Co., which has been looking to expand its water and energy drink portfolio and jump-start sales in North America, said Friday it has agreed to buy Vitaminwater maker Glaceau in a cash deal valued at $4.1 billion.

The world's largest beverage maker said the agreement to acquire privately held Energy Brands Inc., known as Glaceau, provides Atlanta-based Coca-Cola with a strong platform to grow its "active lifestyle" beverages.

The acquisition, Coca-Cola's largest ever, will be financed with debt, and is expected to add to Coca-Cola's earnings starting in 2008, but will slightly dilute profits this year, executives said.

Coca-Cola's chief financial officer, Gary Fayard, said in a conference call with analysts that Coke will take full ownership of Glaceau, which for now is 30 percent owned by holdings of India's Tata Group, a conglomerate with interests spanning steel, software services, hotels, chemicals and insurance. The Tata stake will be acquired later than the majority stake, Fayard said.

Tata paid $677 million for the stake last year, a deal that valued the entire company at $2.2 billion, Coca-Cola said.

The deal could reduce Coca-Cola's financial flexibility to buy back its own shares. Coca-Cola had previously said it would buy $2.5 billion to $3 billion of its stock this year; Fayard said Friday the company now expects to repurchase at least $1.75 billion to $2 billion in shares in 2007.

Fayard said the company expects cost savings from the deal to develop later, and he added that Coca-Cola will invest those savings in further growth of Glaceau's brands.

Formed in 1996 and based in Whitestone, N.Y., Glaceau is the maker of Vitaminwater, Fruitwater, Smartwater and Vitaminenergy.

The deal to buy Glaceau, which would operate as a separate business unit within Coca-Cola's North America segment, is expected to close in the summer. It is subject to regulatory review. The boards of both companies have approved the transaction.

Glaceau is attractive for Coca-Cola because of its position in the enhanced-water and energy drink categories, which Coca-Cola is betting will make up a large portion of the beverage industry's growth in North America through 2010.

Coca-Cola said Glaceau's top three executives - founder and CEO J. Darius Bikoff, President Mike Repole and Chief Financial Officer Mike Venuti - intend to lead the business for at least three years, and that other key managers will remain in the business.

A spokeswoman for Glaceau, Nina Fiddian-Green, declined to discuss her company's corporate structure and financial information, and she referred questions to Coca-Cola. Glaceau does not release annual sales figures.

Coca-Cola has been trying to improve sales in its key North America unit, which has been a weak spot. The company's 14 percent increase in first-quarter profit came on a double-digit rise in overall sales, but in North America, unit-case volume declined 3 percent in the quarter.

Coca-Cola shares rose 62 cents to $51.86 in morning trading Friday. [Via AP]