So you want to sell soft drinks in Germany. What's it worth to you?
That's the question Coca-Cola Co. is expected to ask Coca-Cola Enterprises, one of its biggest bottlers, sometime between August 2011 and late May 2013. Coca-Cola Enterprises, or CCE, gets the right to acquire German bottling operations from Coca-Cola at "fair value," and it has indicated it wants to engage with Coke in talks soon.
With a population of 82 million, Germany is one of the world's largest economies and could add $2 billion in annual revenue to CCE's coffers. The country accounts for 2 percent of Coca-Cola's sales volume, according to the financial firm Stifel, Nicolaus & Co.
Coca-Cola claimed 38 percent of carbonated soft drink sales in Germany last year, according to the trade journal Beverage Digest.
Coca-Cola acquired 18 German bottling and distribution operations in 2007 and put them into its Bottling Investments unit. That operating group, sometimes called Coke's "hospital ward" for troubled bottlers, currently owns bottlers in China, India and the Philippines.
"Strategically, CCE does not need Germany, but Coke needs to show that it will release patients out of the hospital ward with good partnership principles," Credit Suisse analyst Carlos Laboy said.
CCE chief executive John Brock indicated the bottler might be interested in additional territories in Western Europe, besides Germany. The bottler currently does business in Belgium, France, Great Britain, the Netherlands, Norway, Sweden and several smaller markets in Europe.
Last year, unit case volume fell 2 percent in Germany, steeper than Europe's 1 percent decline. But the country has improved recently, with unit case volume rising 2 percent in Germany through the first nine months of 2010.
Germany remains a challenging market for Coca-Cola because of relatively low market share and the strength of discount beverage brands.
"We're not going to do this transaction [in Germany] unless it creates value," Brock said. "It is a challenging market. It's strategically important because it's big and it's in the center of Europe. [But] we're going into it eyes wide open."
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