SMC may sell stake in Coca-Cola early next year

The sale by San Miguel Corp. (SMC) of its controlling 65-percent stake in Coca-Cola Bottlers Philippines Inc. (CCBPI) may take place in early 2007, an analyst said.

The source, who attended SMC’s financial briefing Thursday, said Southeast Asia’s largest food and beverage conglomerate expects to finalize a deal to sell its entire shareholdings in CCBPI to Atlanta-based Coca-Cola Co. in January next year. Coca-Cola owns the balance of 35 percent in CCBPI.

The agreement will contain a non-competition clause, barring SMC for five years from marketing products that would compete with those being sold by CCBPI.

Talks opened on the sale earlier this year after SMC informed the stock exchange in July that negotiations had started.

CCBPI sale have been noticeably weakening in recent years as health-conscious consumers shift to non-carbonated drinks or green tea-based drinks.

Last year, CCBPI’s sales shrank eight percent to 520 million cases, bringing down revenues by seven percent to P39.8 billion and operating profit by 63 percent to P1.2 billion. This even as CCBPI deferred price increases and implemented rigorous cost-containment measures and improvements in operational efficiencies.

In the nine months ending September this year, CCBPI’s sales further slid by four percent.

Earlier reports said the Coca-Cola parent was not pleased with the way its local partner, SMC, was running CCBPI because of plunging sales and profit margins.

CCBPI’s products have been losing ground to the Gokongwei-owned food and beverage unit Universal Robina Corp.’s C2, other tea-based drinks, and to old rival and now much cheaper Pepsi.

CCBPI owns several subsidiaries that include Philippine Beverage Partners, Philippine Bottlers, and Cosmos Bottling Corp.

SMC had sold its Coke stake to Coca-Cola for $3 billion in the late 1990s only to get it back years later at half the price, enabling it to make a profit of at least $1 billion and leading to the formation of CCBPI.

Analysts said the transaction, if it materializes, would enable SMC to raise funding for its acquisitions and allow it to concentrate on its bread and butter business — beer.

Some analysts said the plan may be a welcome development as CCBPI could drag SMC’s bottom line. The sale is set to significantly increase Coca-Cola’s share of the Philippine bottling market and its influence.

Dominant in the domestic beer, softdrinks, dairy, processed food and poultry markets, SMC has expanded aggressively in Asia to reduce its reliance on the Philippines. Last year, it bought dairy giant National Foods for $1.5 billion and took over juice maker Berri Ltd., both based in Australia.

Both acquisitions contributed to a six-percent sales growth in the first nine months of the year.