Coca-Cola Amatil boss Alison Watkins says the ASX-listed bottler had rebuffed a number of offers from Coke’s European arm last year before finally backing the shock $9.3 billion bid lobbed by the suitor.
The proposed deal, the biggest foreign bid for an Australian company since Asahi’s successful $16 billion offer for CUB, is backed by Atlanta-based The Coca-Cola Company, which owns about 30.8 per cent of the Australian beverages giant and about 20 per cent of Coca-Cola European Partners (CCEP).
“We first started having discussions with them in early 2019, and we had a number of proposals during 2019 none of which the RPC (Amatil’s related party committee) thought were in shareholder interests. And then they came back with a new proposal, just in September,” Coca-Cola Amatil boss Alison Watkins told The Age and The Sydney Morning Herald.
“We’ve had a fairly intense period of discussion and negotiation since then, to get to a point where the independent directors felt that we had a price and level of conditionality that meant shareholders should get the opportunity to consider this offer,” she said.
The proposed deal would be via a scheme of arrangement and Amatil’s independent directors have flagged their unanimous support for it. It would also need approval from the Foreign Investment Review Board (FIRB), Amatil shareholders and New Zealand regulators, given Amatil’s presence in NZ.
Amatil shareholders would receive $12.75 cash per share, equal to a 23 per cent premium to the stock’s one week volume weighted average price.
While the previous bids for Coca-Cola Amatil were at lower prices and had more conditions attached to them, Australian investors on Monday expressed reservations about the latest offer on the table.
“The deal looks quite opportunistic. Obviously the stock was down 30 per cent on the back of COVID, and they had a big impact on their volumes and their revenues,” said Reece Birtles, chief investment officer at Martin Currie, which holds about 25 million Amatil shares.
“We’re at a time where there’s significant improvement occurring as COVID impacts are reducing in Australia…we really don’t see how it’s a compelling price compared to the standalone opportunities the company can deliver,” he said.
Angus Gluskie, managing director of Amatil investor White Funds Management, also expressed reservations about the offer.
“I’d be initially hesitant about this on face value. Even though it’s recommended by the independent directors, it’s to an associated entity,” he said.
“The first thing that strikes me is that it’s a little bit opportunistic, in the sense that they’ve picked a soft time in markets for this stock, to throw in this bid…In other markets, in other times, the stock could be worth more than it has been trading at,” he said.
Asked about concerns that $12.75 was too low, Ms Watkins said it was a 27 per cent premium to the 12 month market consensus target price among analysts.
“It’s quite a challenging time to put forward a proposal like this. However, I think that they felt they know us well and had a good understanding of what was important so they felt it was an opportune time from their perspective to come back,” she said.
“The independent directors are very comfortable that it does represent a very good result for shareholders and one that they could recommend,” she said.
But Ms Watkins also admitted that she was “surprised” when the European arm of Coca-Cola revived its interest in a deal last month. Coca-Cola Amatil chairman Ilana Atlas declined to reveal details of earlier discussions between the two businesses, but said: “Suffice to say that the current proposal is the best we’ve received, both in terms of price and conditionality.”
Morgans analyst Belinda Moore said the European business had a history of consolidating businesses and would get geographic diversification, cost savings and growth from Amatil.
“It’s a reasonable price for shareholders, however I wouldn’t say it’s a knockout offer. And clearly the timing is opportunistic given Coke’s earnings and share price have been impacted by COVID-19,” she said.
Coca-Cola European Partners is the world’s largest Coca-Cola bottler by revenue, operating in 13 countries and serving over 300 million consumers.
Coca-Cola Amatil shares closed up 16.3 per cent at $12.50 on Monday.
Coca-Cola European Partners, formed through the merger of three different operations in 2016, generated revenue of $12 billion Euros ($A19.92 billion) in 2019.
Damian Gammell, chief executive of Coca-Cola European Partners, said the deal would cement the company’s position as the biggest Coca-Cola bottler by revenue.
“This is a unique and tremendous opportunity to combine two of the world’s best bottlers, creating a broader and more balanced geographic footprint, including one of the most attractive and populous emerging markets,” he said.
Coca-Cola Amatil’s shares traded around $13 in February this year, around the time the company posted strong 2019 calendar year results and issued a healthy outlook for 2020.
But this was before the COVID-19 pandemic spread around the world and pushed Australia into recession, and key Coca-Cola Amatil customers like restaurants, cafes, pubs, stadiums and cinemas were forced to close to patrons because of restrictions designed to curb the spread of the coronavirus.
The closures slashed Coca-Cola Amatil revenue, particularly in April and May, but in September quarter of calendar 2020 the company’s performance improved and revenue was down only 4.2 per cent on the same period last year.
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