SABMiller share price up, partners up with Coca-Cola to dive into Africa’s markets

SABMiller and Coca-Cola are teaming up to create the biggest bottling operator in Africa in order to get a better grasp on the continents beverage market.

SABMiller, the worlds second-largest brewer by volume, has previously shown interest in Africa and described it as the most promising long-term growth market.

Should the deal be completed, SABMiller will have a 57% stake in the new company, while Coca-Cola will hold 11.3% of the shares. The rest of the company will be owned by Gutsche Family Investments, a major shareholder in South Africa-based bottler Coca-Cola Sabco. The joint company will be named Coca-Cola Beverages Africa.

With headquarters in South Africa, Coca-Colas biggest consumer on the continent, the company will serve 12 high-growth countries across southern and eastern Africa. The agreement will form the worlds 10th largest soft drink bottling operation.

Under the all-equity deal the companies will join their bottling plants with SABMillers water business. The agreement is expected to be approved by the countrys regulator within six to nine months, however the merger is considered a class two transaction and does not need conformation from neither SABMillers or Coca-Cola’s shareholders.

“A combined Coca-Cola bottling operation is further evidence of our commitment to Africa, and our firm belief in the tremendous growth prospects that the continent offers” said Muhtar Kent, Chairman and CEO of Coca-Cola.

Due to investor pressure to generate better results, last year Coca-Cola combined its seven Spanish bottlers to increase efficiency and boost revenue, this may be yet another step in same direction.

“Africa offers significant growth potential in beverages, underpinned by rising personal disposable income, a fast-growing population and increasing per capita consumption,” the companies said in a joint statement.

The new facility is expected to have a yearly revenue of $2.9 billion, excluding unusual and nonrecurring transactions, and to be able to process 729 million unit cases, or 41 million hectoliters.

“This transaction increases our exposure to the total beverage market in Africa. The opportunity is significant, with favourable demographics and economic development pointing to excellent growth prospects” said SABMillers CEO Alan Clark.

Coca-Cola will also purchase SABMillers Appletiser soft-drink brand and the rights to a further 19 non-alcoholic ready-to-drink brands in Africa and Latin America in $260 million cash deal.

The Coca-Cola Co gained 0.36% on Tuesday, with an additional 0.37% on Wednesday and closed at $44.29, marking a one-year increase of 10.04%.

SABMiller PLC lost 0.17% on Wednesday and closed at GBX 3 527.5 in London. On Thursday the stock edged up 0.01% to trade at GBX 3 528 at 12:06 GMT, marking a one-year increase of 10.70%.