Coca-Cola Amatil works up plan to restore growth after SABMiller deal

CCA expects to report an underlying rise in net profit of 4.5% in the December half, its lowest rate of profit growth since 2006.

COCA-COLA Amatil might have reduced its blue-sky growth options when it sold a big hunk of its alcohol business to SABMiller but rumours are rife that it is mapping out a three-year alcohol strategy that includes bidding for the lucrative Corona beer contract once it is free to re-enter the Australian beer market next year.

Another part of its strategy is the purchase of part or all of Foster's non-beer business. Coca-Cola Amatil (CCA) has confirmed that this month it will begin due diligence on the business, which includes Foster's Australian spirit and ready-to-drink operation, its Australian non-alcoholic business and the Fijian brewery, liquor and soft-drinks business for up to $180 million.

While most think CCA will buy the operation lock, stock and barrel, there is talk that CCA might sell off the spirits arm, which includes Black Douglas, Cougar Bourbon, Kirov Vodka and Napoleon brandy, to Beam Inc, owner of the Jim Beam brands and holder of a licence agreement with CCA to distribute Jim Beam in Australia.

The details of CCA's agreement with Jim Beam are confidential, but a well-placed industry source says Beam is interested in buying some of the Foster's non-beer business.

CCA is clearly in no mad rush to buy Foster's non-beer business. It has a right to acquire all or part of it until June, and it has indicated it will take that time to do a deal. If it had been in a hurry it could have

started due diligence as soon as the Foster's board approved the takeover offer from SABMiller.

The Fijian beer, spirits and soft-drink business would be a great fit for CCA, which at present holds the Coca-Cola bottling franchise in Fiji. Indeed, at one stage Foster's planned to recruit the head of CCA in Fiji to run its business. The acquisition would also create synergies with Foster's soft-drinks business, which includes brands such as Cascade and Hi C, which are premium but not high volume.

Waiting until the new financial year buys CCA boss Terry Davis a short-term growth filler before CCA can proceed with its long-term growth strategy in alcohol. Three weeks ago it said it would receive a $165 million profit from the sale of its 50 per cent stake in Pacific Beverages.

But the long-term strategy is where the market will be focused, given CCA's current lack of blue-sky growth potential.

This is most likely to include trying to win the Corona licence from Foster's and then leveraging off it to buy a boutique beer company. Corona is one of the most lucrative beer licences in the country, generating a profit in Australia of about $70 million a year. When the licence comes up for renewal, it will be heavily sought after by the big beer companies.

Last month the newly owned Foster's lost the Stella beer licence to the Japanese-owned Lion Nathan. The Stella licence was worth about $15 million a year.

As part of the sale of CCA's 50 per cent interest in Pacific Beverages to SABMiller for $305 million, CCA agreed to steer clear of the beer market in Australia until the end of next year. It is believed that the Corona licence will be up for grabs around that time and one of CCA's key executives, John Murphy, will be focused on wooing it over.

CCA certainly needs a new string to its bow. In an update to the market on December 16, Davis warned that the company expected to report an underlying rise in net profit of 4.5 per cent in the December half.

This would be its lowest rate of profit growth since 2006 and was underpinned by revenue growth in Australia and Indonesia. CCA'S foray into SPC has been a disaster; it missed out on Frucor and Golden Circle and also missed out on Boag's.

Recent media speculation is that the company is considering re-entering the snack foods business after selling out in 1993. The latest talk is that it might be interested in dipping its toes back in the market with a tilt at The Real McCoy Snackfood Company, which owns several me-too brands such as Cheesters, Burger Man and Nature's Earth.

CCA's stock finished in yesterday's trading at $11.68, slightly above the $11.61 cash-and-scrip offer from Lion Nathan in 2008-09. It is worth noting that this offer was made before Kirin's offer for Lion, which would almost certainly still have come and delivered a further accelerated return to CCA shareholders who took Lion scrip.

Kirin subsequently paid $12.22 a share for Lion shares, which were trading at less than $9 at the time of Lion's offer for CCA, and it would arguably have had to pay a higher premium to take out the remainder of a stronger combined group at some point. (The scheme was designed to leave Kirin with 46 per cent of Lion/CCA, the same as Kirin owned in Lion.)

The market will await CCA's next move, but no doubt its parent, The Coca-Cola-Company, will be watching even more closely to make sure its plans fit in with its own.

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